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.
Keywords: Europe, EU, Banking, Stress Testing, Stress Test Methodology, Stress Test Templates, Guidance, 2020 Stress Test, EBA
APRA updated the lists of the Direct to APRA (D2A) validation and derivation rules for authorized deposit-taking institutions, insurers, and superannuation entities.
EC adopted a package that includes the digital finance and retail payments strategies and the legislative proposals for regulatory frameworks on crypto-assets and digital operational resilience.
ECB published an opinion (CON/2020/22) on proposals for regulations amending the securitization framework of EU, in response to the COVID-19 pandemic.
FCA is consulting on its approach to the authorization and supervision of international firms operating in UK.
MAS published amendments to Notice 637 on the risk-based capital adequacy requirements for reporting banks incorporated in Singapore.
FCA announced that it will move firms to RegData from Gabriel in the coming months in stages, based on the reporting requirements of firms.
ISDA issued a letter to regulators to flag that it now expects the supplement to the 2006 ISDA Definitions and the Interbank Offered Rate (IBOR) Fallbacks Protocol to be effective around mid- to late-January 2021.
APRA has concluded its review of the comprehensive plans of authorized deposit-taking institutions for the assessment and management of loans with repayment deferrals.
ESAs (EBA, EIOPA, and ESMA) published the first joint report that assesses risks in the financial sector since the outbreak of the COVID-19 pandemic.
BoE and HM Treasury confirmed that the COVID Corporate Financing Facility (CCFF) will close for new purchases of commercial paper, with effect from March 23, 2021.