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June 07, 2017

EBA published the 2018 EU-wide stress test draft methodology and templates for discussion with the industry, along with the list of institutions participating in the exercise. The final methodology will be published as the exercise is launched, at the beginning of 2018, and the results are expected to be published in mid-year 2018.

The methodology covers all relevant risk areas and will also incorporate IFRS 9 accounting standards for the first time. For banks starting to report under IFRS 9 in 2018, the 2018 EU-wide stress test takes into account the impact of the implementation of IFRS 9 on January 01, 2018—both in terms of starting point and projections. The draft methodology is the starting point for an informal discussion with banks to receive their input, which will be taken into account when finalizing the documents.

 

The stress test exercise will cover 70% of the banking sector in the EU and will evaluate the ability of banks in the EU to meet relevant supervisory capital ratios during an adverse economic shock. The exercise is based on a common methodology and a set of templates that capture starting point data and stress test results. The 2018 EU-wide stress test will be conducted at the highest level of consolidation on a sample of 49 EU banks, 35 of which fall under the jurisdiction of the Single Supervisory Mechanism (SSM). The banks will be assessed against relevant supervisory capital ratios under a static balance sheet; therefore, no single capital threshold is defined for this exercise. The results will inform the 2018 Supervisory Review and Evaluation Process (SREP), challenging capital plans of banks and leading to relevant supervisory outcomes.

 

Related Links

Draft Methodology (PDF)

Draft Templates (XLS)

EU-Wide Stress Testing, 2018

Keywords: Europe, EBA, Banking, Stress Testing, IFRS 9, SSM, SREP

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