Featured Product

    EBA Launches the 2020 Stress Test for Banks in EU

    January 31, 2020

    EBA launched the 2020 EU-wide stress test and released the associated macroeconomic scenarios. The additional documents published by EBA include methodological note, template, template guidance, and frequently asked questions on the stress test exercise. ESRB and ECB—in close cooperation with EBA, competent authorities, and national central banks—have developed the adverse macroeconomic scenario. The results of the stress testing exercise are expected to be published by July 31, 2020.

    The 2020 stress test methodology was published in November 2019 and is to be applied to the released scenarios. The baseline scenario for EU countries is based on the projections from the national central banks of December 2019, while the adverse scenario assumes the materialization of the main financial stability risks that have been identified by ESRB and which the EU banking sector is exposed to. The adverse scenario follows, for the first time, a "lower for longer narrative," which involves a recession coupled with low or negative interest rates for a prolonged period. The real GDP in EU would decline by 4.3% cumulatively by 2022, resulting in the most severe scenario to date. The adverse scenario also reflects the recent risk assessments by EBA and outlines the evolution of key economic and financial variables in a hypothetical adverse situation, thus capturing the materialization of relevant risks to which the EU banking system is exposed. Detailed information about the adverse scenario can be found in the note published by ESRB.

    The EU-wide stress test will be conducted on a sample of 51 EU banks—35 from countries under the jurisdiction of the Single Supervisory Mechanism or SSM—covering roughly 70% of the total banking sector assets in the EU and Norway, as expressed in terms of total consolidated assets as of end 2018. This year, UK banks will be included in the sample, as the 2020 EU-wide stress test takes place during the implementation period following the withdrawal of UK from EU. ECB will examine the 35 significant euro area banks as part of the 2020 EU-wide stress test coordinated by EBA. ECB will conduct its own stress test in parallel for the significant banks not covered by the EU-wide EBA stress test. This will also consider the smaller size and lower complexity of these institutions. 

    The stress test is designed to provide supervisors, banks, and other market participants with a common analytical framework to consistently compare and assess the resilience of EU banks to economic shocks. In line with the previous two exercises, no pass-fail threshold has been included, as the results of the exercise are designed to serve as an input to the Supervisory Review and Evaluation Process or SREP. The EBA stress tests are conducted in a bottom-up fashion, using consistent methodologies, scenarios, and key assumptions developed in cooperation with the ESRB, ECB, and EC. EBA, who is responsible for coordinating the whole exercise, developed a common methodology and will act as a data hub for the final dissemination of the results while competent authorities will assure the quality of the results and decide on any necessary supervisory reaction measure as part of the SREP process. ECB will cross-check the bottom-up stress test submissions of banks with its own top-down stress-testing framework to assess the macro-prudential implications of the exercise.

     

    Related Links

    Keywords: Europe, EU, Banking, Stress Testing, EU-Wide Stress Test, 2020 Stress Test, SREP, SSM, ESRB, ECB, EBA

    Featured Experts
    Related Articles
    News

    OSFI Discusses Benchmark Rate Transition, Sets Out Work Priorities

    The Office of the Superintendent of Financial Institutions (OSFI) published the strategic plan for 2022-2025 and the departmental plan for 2022-23.

    May 17, 2022 WebPage Regulatory News
    News

    EBA Proposes Standards to Support Secondary NPL Markets

    The European Banking Authority (EBA) is consulting, until August 31, 2022, on the draft implementing technical standards specifying requirements for the information that sellers of non-performing loans (NPLs) shall provide to prospective buyers.

    May 17, 2022 WebPage Regulatory News
    News

    EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution

    The European Council and the Parliament reached an agreement on the revised Directive on security of network and information systems (NIS2 Directive).

    May 13, 2022 WebPage Regulatory News
    News

    EBA Issues Standards for Crowdfunding Service Providers Under ECSPR

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying information that crowdfunding service providers shall provide to investors on the calculation of credit scores and prices of crowdfunding offers.

    May 13, 2022 WebPage Regulatory News
    News

    EU to Amend Credit Risk Adjustment Rules; ESAs Submit Queries on SFDR

    The European Council published a draft Commission Delegated Regulation to amend the regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.

    May 13, 2022 WebPage Regulatory News
    News

    EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution

    The European Securities and Markets Authority (ESMA) published a paper that examines the systemic risk posed by increasing use of cloud services, along with the potential policy options to mitigate this risk.

    May 12, 2022 WebPage Regulatory News
    News

    MAS Amends Notice 635 and Issues Second Proposal on Green Taxonomy

    The Monetary Authority of Singapore (MAS) published amendments to Notice 635, which sets out requirements that a bank in Singapore has to comply with when granting an unsecured non-card credit facility to individuals.

    May 12, 2022 WebPage Regulatory News
    News

    EC Consults on PSD2 and Open Finance; EU Reaches Agreement on DORA

    The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.

    May 11, 2022 WebPage Regulatory News
    News

    EC Mandates ESAs to Propose Amendments to SFDR Technical Standards

    The European Commission (EC) has issued two letters mandating the European Supervisory Authorities (ESAs) to jointly propose amendments to the regulatory technical standards under Sustainable Finance Disclosure Regulation or SFDR.

    May 11, 2022 WebPage Regulatory News
    News

    EBA Examines Supervisory Practices, Issues Deposits Reporting Template

    The European Banking Authority (EBA) published its annual report on convergence of supervisory practices for 2021. Additionally, following a request from the European Commission (EC),

    May 11, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8196