Supervision release 20 February 2025 – 16/2025

Stress tests for banks under Financial Supervisory Authority’s direct supervision

In the first half of 2025, the European Banking Authority (EBA) will conduct EU-wide stress tests of European banks. The Financial Supervisory Authority (FIN-FSA) will conduct, together with supervised entities, a national extension for the Finnish banking sector, separate from the EBA stress test, covering the eight banks directly supervised by the FIN-FSA.

The national extension of the EU-wide stress test to be conducted is part of the FIN-FSA's ongoing prudential supervision, the purpose of which is to assess the resilience of the Finnish financial system to very adverse but plausible developments in the operating environment of the supervised entities. The purpose of the stress test is to assess the profits and loss-absorbing capacity of the supervised entities, and the results will provide input to the assessment of capital adequacy.

The baseline scenario and adverse scenario applied in the stress test exercise are based on projections by the European Central Bank (ECB) and the national central banks, and on the triggering of the main risks to the financial sector identified by the ECB and the European Systemic Risk Board (ESRB), particularly in a situation in which the period characterised by a recession covers the years 2025–2027.

The adverse scenario assumes the materialisation of the main financial stability risks identified by the ESRB. The scenario is based on a hypothetical severe escalation of geopolitical tensions that results in severe supply and demand shocks, culminating in a significant contraction in global economic growth. An increase in trade tariffs, along with retaliatory measures by several countries, results in more inward-looking global trade policies, further amplifying trade fragmentation. In the adverse scenario covering three years, Finland's GDP contracts by a total of 7.3%, unemployment increases by 5.6 percentage points, the values of residential real estate decline by 8.1% and the values of commercial real estate fall by 23.2%.

Under the stress tests, each bank uses a common framework and methodology to assess the impact on its own profits and capital position based on figures at the end of 2024. The scenarios also feature simplifying assumptions and constraints that presumably would not hold in reality. The instructions are based on the methodology published by the European Banking Authority.

For further information, please contact

Deni Seitz, Senior Specialist, deni.seitz(at)fiva.fi

See also