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This summer’s European stress tests occurred at a time of shifting expectations for the European banking sector, including the return of dividend payments and a challenging monetary environment. The tests, which covered 75% of European banking assets, used the banks’ common equity tier 1 (CET1) ratio as of year-end 2020 as their baseline and examined the period of 2021 to 2023. The regulators concluded that European banks have enough capital to withstand an adverse economic scenario. Banks’ average CET1 ratio fell 5.2 percentage points under the adverse scenario, with credit risk, market risk, and income generation capacity the main drivers of capital depletion. The starting CET1 levels for the Spanish banks is generally lower, but capital depletion in the adverse scenario is also lower. This indicates that although the Spanish banks continue to present slightly below-average capital ratios, they are more resilient than the average European bank. Importantly, the results of these tests will influence Pillar 2 Guidance and the Supervisory Review and Evaluation Process. On top of these pressures, banks will have to contend with an uneven regulatory environment with FinTechs and growing sensitivity surrounding ESG-related issues.

Carbó, S. and F. Rodríguez (2021). «Stress tests and other challenges for Spanish». SEFO – Spanish Economic and Financial Outlook 10, n.º 5 (September): 33-38.