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    EBA Issues Draft Methodology and Templates for 2023 Stress Tests

    July 21, 2022

    The European Banking Authority (EBA) published the draft methodology, templates, and template guidance for the European Union-wide stress test in 2023. The 2023 exercise will assess the resilience of banks in European Union to an adverse economic shock and inform the 2023 Supervisory Review and Evaluation Process (SREP). EBA expects the final methodology to be published by the end of 2022. The stress test exercise will be launched in January 2023, with the results expected to be published by the end of July 2023.

    The draft methodology document describes the common methodology that defines how banks should calculate the stress impact of the common scenarios and sets constraints for the bottom-up calculations. In addition to setting these requirements, it aims to provide banks with adequate guidance and support for performing the European Union-wide stress test. The methodology lists components of banks’ projections for which banks are required to provide additional information in accompanying documents (for example, on the methods applied) as input to the quality assurance process. The draft methodology covers all risk areas and builds on the 2021 stress test exercise. The draft methodology will continue to rely mainly on a constrained bottom-up approach. However, following the EBA decision to move to a hybrid framework on a step-by-step approach, projections for net fee and commission income (NFCI) will be provided to banks based on supervisory top-down models. This is a first step of revising the stress test framework toward a hybrid (bottom-up and top-down) approach. Also, further proportionality has been introduced into the methodology and the sample coverage has been increased, with 26 banks having been added to the stress test sample of 50 banks in the 2021 exercise. Annex I to the methodology note contains the preliminary list of institutions that are included in the sample.

    The draft template guidance provides technical guidance to the participating banks for populating the set of templates for the 2023 European Union-wide stress test. The draft guidance should be read in conjunction with the draft methodology, as most of the information needed for the population of the templates are included in the sub sections on the scope of application, on the definitions used in the chapter and on reporting requirements. The draft guidance covers general topics such as template types, data input and formats, and applied supervisory reporting standards. Each template is covered in a separate section containing a summary of the purpose and data of the template, followed by a description of its structure. All templates used in the 2023 stress test exercise refer to the specific version of supervisory reporting requirements in place as of December 31, 2022—this means the use of financial reporting framework (FINREP) and common reporting framework (COREP) standards for all templates as in the EBA reporting framework 3.2 (applicable for reports until December 31, 2022).

     

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    Keywords: Europe, EU, Banking, Stress Testing, Reporting, Templates, Guidance, Methodology, Basel, SREP, FINREP, COREP, Reporting Framework 3.2, EBA

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