Banks urged to embed dry runs within broader risk management

The European Banking Authority (EBA) has published a report comparing how banks test the implementation of their recovery plans through so-called dry runs, highlighting significant differences in approach and effectiveness across institutions.

The report comes at a time of heightened uncertainty and an ongoing need for operational preparedness, concluding that dry runs are a key tool in strengthening resilience to unexpected stress events.

The analysis confirms that when used meaningfully, dry runs improve institutions’ ability to respond to stress situations in a timely and credible manner.

The findings show that most institutions recognise the value of such exercises and use the lessons learned to improve their recovery planning arrangements.

However, the report identifies wide variation in both the approaches and levels of maturity across institutions, indicating that not all banks benefit equally from these exercises.

Where dry runs are conducted primarily to meet supervisory expectations, they tend to be less effective and often resemble compliance exercises with limited insights and follow-up actions.

By contrast, institutions with more advanced practices treat dry runs as genuine management tools, embedding them fully within their broader risk management framework.

In these cases, the exercises enhance internal preparedness by improving the credibility, feasibility and organisational understanding of recovery planning arrangements.

The EBA stresses that maintaining regular and high-quality testing of key recovery plan elements will be essential for strengthening banks’ resilience going forward.

It also highlights the importance of continuing to refine dry run practices to ensure they remain relevant and effective in evolving risk environments.

The report points to the potential benefits of stronger synergies and better integration of testing activities across both recovery and resolution processes, supporting a more effective crisis management continuum.

The analysis was carried out in line with the EBA’s supervisory convergence priorities, under which the usability and testing of recovery plans is a central focus for prudential supervisors in 2026.

It also reflects the authority’s broader mandate to contribute to effective recovery and resolution planning across the European banking sector.

The report is described as particularly timely given recent and upcoming regulatory developments that are expected to shape how crisis preparedness is tested and coordinated.

These include the publication of the EBA handbook on simulation exercises, which outlines methodologies and good practices for coordinated simulation exercises among resolution authorities.

They also include the EBA’s preparations for its future mandate under the crisis management and deposit insurance framework, which will involve coordinating EU-wide simulation exercises across competent and resolution authorities.

The authority emphasised that the benchmarking exercise is not intended to provide prescriptive guidance but rather to support institutions in further developing their practices.

In addition, it aims to help establish useful benchmarks for the implementation of dry runs while encouraging institutions to enhance the effectiveness of their testing frameworks.