EBA Concludes Peer Review on Deposit Guarantee Scheme Stress Tests
EBA published its first peer review report on the stress tests and the resilience of Deposit Guarantee Schemes. The review, which is mandated under the Deposit Guarantee Schemes Directive or DGSD, was based on the results of the Deposit Guarantee Scheme stress tests and intended to identify good practices and areas for improvement. The report presents the results of an assessment of 135 Deposit Guarantee Scheme stress tests performed by 32 Deposit Guarantee Schemes from 27 member states in EU. In the report, EBA highlighted certain shortcomings and provided early indications on how to improve and enhance the framework.
The DGSD requires member states to ensure that Deposit Guarantee Schemes perform stress tests of their systems. In 2016, EBA issued guidelines on stress tests of Deposit Guarantee Schemes that set out the scope, principle-based requirements, and a list of four "priority tests" that Deposit Guarantee Schemes are required to perform. The DGSD, in turn, requires EBA to use these reports to conduct a peer review of all Deposit Guarantee Schemes across EU, at least every five years. In this exercise, the priority tests covered operational and funding capabilities of Deposit Guarantee Schemes, credit institutions’ single customer view (SCV) files containing depositor information to prepare for a Deposit Guarantee Scheme payout, and cross-border cooperation between Deposit Guarantee Schemes in case of cross-border branches. EBA concluded that such tests have become an established tool to prepare for Deposit Guarantee Scheme interventions.
EBA is of the view that, using the grading system outlined in the guidelines on stress tests of Deposit Guarantee Schemes, the overall resilience of Deposit Guarantee Schemes across the EU is "fair," which is the second best result, after "optimal." This means that the identified shortcomings are isolated and/or can easily be addressed by the Deposit Guarantee Schemes at the point of failure and are unlikely to affect the ability of Deposit Guarantee Schemes to perform their tasks in line with the DGSD. The report also identified good practices that were deployed by a number of Deposit Guarantee Schemes and that can be considered by the other Deposit Guarantee Schemes. EBA also highlighted certain shortcomings and provided early indications on how to improve and enhance the framework. In particular, EBA found that the divergence in the type of exercises performed and in the way outcomes were reported made it difficult for EBA to compare the tests between Deposit Guarantee Schemes, thus hampering the desired consistency. EBA, therefore, provided early indications on how to enhance the comparability for future peer reviews. These early indications will also serve as input for any potential future revision of the EBA guidelines on stress tests of Deposit Guarantee Schemes.
While the peer review performed by EBA is a regular exercise required by the DGSD, it also includes provisions stemming from the outbreak of the COVID-19 pandemic. The report outlines lessons learned from a real-life payout case in one EU member state that coincided with the pandemic. In relation to the COVID‐19 pandemic, the report includes an early indication of how to improve the framework by exploring how to incentivize Deposit Guarantee Schemes to perform special tests that allow them to assess scenarios resulting in severe business continuity problems, such as a pandemic, power outages, or significant operational disruptions.
Related Links
Keywords: Europe, EU, Banking, DGS, DGSD, Deposit Guarantee Schemes, Peer Review, Resolution Framework, COVID-19, EBA
Previous Article
BCBS Met, Discussed COVID Impact and Finalized CVA Risk FrameworkRelated Articles
EBA Publishes Phase 2 of Technical Package on Reporting Framework 2.10
EBA published phase 2 of the technical package on the reporting framework 2.10, providing the technical tools and specifications for implementation of EBA reporting requirements.
FASB Proposes to Delay Implementation of Insurance Contracts Standard
FASB issued a proposed Accounting Standards Update that would grant insurance companies, adversely affected by the COVID-19 pandemic, an additional year to implement the Accounting Standards Update No. 2018-12 on targeted improvements to accounting for long-duration insurance contracts, or LDTI (Topic 944).
APRA Updates Regulatory Approach to Loan Deferrals Amid COVID Crisis
APRA updated the regulatory approach for loans subject to repayment deferrals amid the COVID-19 crisis.
BCBS and FSB Set Out Recommendations for Benchmark Transition
BCBS and FSB published a report on supervisory issues associated with benchmark transition.
IAIS Sets Out Recommendations for Benchmark Transition for Insurers
IAIS published a report on supervisory issues associated with benchmark transition from an insurance perspective.
ESMA Updates Reporting Manual on European Single Electronic Format
ESMA updated the reporting manual on the European Single Electronic Format (ESEF).
EBA Calls on Resolution Authorities to Consider Impact of COVID Crisis
EBA published a statement on resolution planning in light of the COVID-19 pandemic.
BCBS Finalizes Revisions to Credit Valuation Adjustment Risk Framework
BCBS Finalizes Revisions to Credit Valuation Adjustment Risk Framework
ECB Guideline on Materiality Threshold for Credit Obligations Past Due
ECB published a guideline (2020/97), in the Official Journal of European Union, on the definition of materiality threshold for credit obligations past due for less significant institutions.
FED Temporarily Revises FR Y-14 With Respect to PPP and CARES Act
FED temporarily revised the capital assessments and stress testing reports (FR Y-14A/Q/M) to implement the changes in response to the COVID-19 pandemic.
