The European Banking Authority has published its draft methodology for the 2027 EU-wide stress test, introducing for the first time a dedicated module on climate risk. The draft reflects the EBA's broader simplification agenda, cutting required data points by 55% through closer alignment with FINREP and COREP reporting, while preserving the robustness and comparability of results across the exercise. It also revises the treatment of several risk areas, including securitisation, market risk capital calculations, and counterparty default assumptions.

This update addresses longstanding industry calls for a leaner, less duplicative stress test, particularly given the operational burden of reconciling stress-test-specific data with regular supervisory reporting. In this paper, we examine the key methodological changes between 2025 and 2027, the new climate risk module, and what the 2025 adverse scenario reveals about the severity Cyprus and the EU can expect going forward.

Our team supports institutions in preparing for the 2027 exercise — through methodology gap analysis, data and reporting alignment, climate risk module design, and scenario application across credit, market, and operational risk.

As the consultation period progresses and the final methodology takes shape, institutions should proactively reassess their stress-testing infrastructure to ensure readiness and operational resilience.