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Article
Isolated Stress Tests Are Failing to Capture Global Risks, Experts Warn
Banking risk specialists warn that conventional stress testing fails to capture the combined effects of geopolitical, economic and climate crises. Drawing on the ECB's 2026 reverse stress testing exercise, they call for integrated risk models, better data, realistic recovery assumptions and stronger analysis of interconnected vulnerabilities across capital, liquidity and funding.
Oct 26, 2026
Center for Financial Professionals ,
Tags:
ALM, Treasury and Liquidity Risk
The views and opinions expressed in this content are those of the thought leader as an individual and are not attributed to CeFPro or any other organization
- Banks urged to model
geopolitical, economic and climate shocks together
- ECB reverse stress
tests required scenarios producing 300 basis points of capital depletion
- Institutions faced
difficulties balancing scenario severity with plausibility
- Data granularity and
disconnected risk models remain major weaknesses
- Recovery plans may
overestimate asset sale proceeds during systemic crises
- Stress testing must
account for competitors taking similar mitigating actions
- Climate and geopolitical risks increasingly share transmission channels
- Integrated capital, liquidity and funding analysis is essential
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