Featured Product

    EBA Issues 2020 Stress Test Methodology and Templates for Discussion

    June 25, 2019

    EBA published the 2020 EU-wide stress test draft methodology, templates, and template guidance, for discussion with the industry. EBA also released the timeline for the stress test, along with the preliminary list of institutions participating in the exercise. The list of participating institutions has been published as part of Annex 1 to the methodology. The final methodology will be published by the end of 2019. The EU-wide stress test will be launched in January 2020 while results of the test will be published by the end of July.

    The stress testing exercise will be based on a common methodology, internally consistent and relevant scenarios, and a set of templates that capture starting point data and stress test results to allow a rigorous assessment of the banks in the sample. The methodology covers all risk areas and builds on the methodology prepared for the 2018 exercise, while improving some aspects based on the lessons learned. It defines how banks should calculate the stress impact of the common scenarios and sets constraints for their bottom-up calculations. In addition to setting these requirements, the methodology aims to provide banks with adequate guidance and support for performing the EU-wide stress test. It does not cover the quality assurance process or possible supervisory measures that should be put in place following the outcome of the stress test. It also 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 2020 EU-wide stress test will be conducted at the highest level of consolidation on a sample of 50 banks. Out of these 50 banks, 38 banks are from the Euro area and they cover broadly 70% of the banking sector in this area while the other banks are from Norway and the non-Eurozone member states. The exercise is expected to be carried out on the basis of year-end 2019 figures and the scenarios will be applied over a period of three years from the end of 2020 to the end of 2022. The 2020 exercise will assess the resilience of EU banks to an adverse economic shock and inform the 2020 Supervisory Review and Evaluation Process (SREP). No single capital threshold has been set for this exercise, as banks will be assessed against relevant supervisory capital ratios under a static balance sheet and the results will be an input to the SREP, under which decisions are made on appropriate capital resources and forward-looking capital plans.

    The 2020 EU-wide stress test is initiated and coordinated by EBA in close cooperation with ESRB,  competent authorities, and ECB. The macroeconomic adverse scenario and any risk type specific shocks linked to the scenario will be developed by ESRB and ECB in close cooperation with the competent authorities and the EBA. UK banks have preliminarily been excluded from the sample; this exclusion is under the assumption that, barring any transitional arrangements in the withdrawal agreement, the UK will leave the EU by October 31, 2019 and, therefore, UK banks will not participate in the 2020 EU-wide stress test. Under the same assumption, HSBC France has been included in the sample. 

     

    Related Links

    Keywords: Europe, EU, Banking, Stress Testing, Stress Test Methodology, Stress Test Templates, Guidance, 2020 Stress Test, EBA

    Featured Experts
    Related Articles
    News

    FED Adopts Proposal to Implement Reporting Form for SCCL

    FED adopted a proposal to implement the Single-Counterparty Credit Limits (SCCL) reporting form (FR 2590; OMB No. 7100-NEW).

    November 20, 2019 WebPage Regulatory News
    News

    FED Proposes to Extend Initial Compliance Dates Under SCCL Rule

    FED published a proposal to extend, by 18 months, the initial compliance dates for foreign banks subject to the single-counterparty credit limit (SCCL) rule.

    November 20, 2019 WebPage Regulatory News
    News

    CBIRC to Strengthen Supervisory and Policy Support for SME Services

    CBIRC released a notification on strengthening supervision and guidance to enhance the quality and efficiency of financial services for "small and micro-enterprises" (SMEs).

    November 20, 2019 WebPage Regulatory News
    News

    APRA Publishes Approach to Regulating and Supervising GCRA Risks

    APRA published an information paper that sets out a more intensive regulatory approach to transform governance, culture, remuneration, and accountability (GCRA) practices across the prudentially regulated financial sector.

    November 19, 2019 WebPage Regulatory News
    News

    US Agencies Update Rule on Derivative Contracts Exposure Calculation

    US Agencies (FDIC, FED, and OCC) announced a final rule updating the way certain banking organizations are required to measure counterparty credit risk for derivative contracts under their regulatory capital rules.

    November 19, 2019 WebPage Regulatory News
    News

    US Agencies Finalize Rule to Amend Treatment of HVCRE Exposures

    US Agencies (FDIC, FED, and OCC) finalized a rule to modify the treatment of high volatility commercial real estate (HVCRE) exposures, as required by the Economic Growth, Regulatory Relief, and Consumer Protection (EGRRCP) Act.

    November 19, 2019 WebPage Regulatory News
    News

    US Agencies Finalize Changes to Rule on Supplementary Leverage Ratio

    US Agencies (FDIC, FED, and OCC) finalized changes to the capital requirement for banking organizations predominantly engaged in custodial activities, as required by the Economic Growth, Regulatory Relief, and Consumer Protection (EGRRCP) Act.

    November 19, 2019 WebPage Regulatory News
    News

    IAIS Consults on Guidance on Liquidity Risk Management for Insurers

    IAIS is seeking feedback on the draft application paper on liquidity risk management for insurers.

    November 19, 2019 WebPage Regulatory News
    News

    IAIS Publishes Application Paper on Recovery Planning

    IAIS published the final application paper on recovery planning, along with the resolution of comments on the draft application paper.

    November 18, 2019 WebPage Regulatory News
    News

    FSB Publishes Summary of November Meeting of RCG for MENA Region

    FSB published a summary of the November meeting of the Regional Consultative Group (RCG) for Middle East and North Africa (MENA).

    November 17, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 4174