EBA proposed to revise the guidelines on the stress tests conducted by national Deposit Guarantee Schemes (DGSs) under the Deposit Guarantee Schemes Directive (DGSD). The proposed revisions will extend the scope of the DGS stress testing, by requiring more tests that will cover additional aspects of DGS interventions. EBA also proposed a revised reporting template for DGSs to share the outcomes of the stress tests. The deadline for the DGSs to submit their next reporting template is set on June 16, 2024. The comment period on the revised guidelines ends on June 11, 2021. Post consultation, the guidelines will be subject to EBA for final adoption.
The proposed revision will extend the scope of the DGS stress testing, by requiring more tests that will cover additional aspects of DGS interventions. Amending the current guidelines is necessary to ensure that all DGSs are well-prepared to perform each of their legally mandated functions, so that depositors are sufficiently protected in all cases. It is also necessary to ensure the stress testing framework is more harmonized so that EBA can fulfil its mandate of conducting robust peer reviews. The proposed framework will achieve greater harmonization and comparability, to enable EBA to carry out a robust peer review of national DGS stress tests in 2024/25. The revised guidelines would further specify the requirements in relation to the design, the execution, and the reporting of the results of the DGS stress tests. The amendments proposed in the revised guidelines are aimed to:
- Require DGSs to stress test their ability to perform all of the interventions they are legally mandated to perform, including reimbursing depositors, contributing to resolution and (depending on national law provisions) to failure prevention and insolvency proceedings.
- Require DGSs to stress test their ability to have access, in due time, to all of their funding sources, including extraordinary ex-post contributions and alternative funding arrangements, such as a credit line. The ability to raise these resources should be tested irrespective of the amount of available ex-ante funds collected by the DGSs.
- Strengthen the cooperation between DGSs and different authorities by requiring to stress test interventions where cooperation with other authorities is necessary. The proposed revised guidelines specify how to assess the arrangements in place between DGSs and public authorities for obtaining information on problems detected at a credit institution that could give rise to DGS intervention. They also require DGSs to share the results of the DGS stress tests upon other authorities’ request.
- Encourage DGSs to choose stress testing scenarios with additional business continuity challenges or external circumstances that create extra stress for the DGSs to perform their functions, such as a pandemic, ICT failures, or other such events.
- Provide a more comprehensive, clear, and harmonized template for recording and submitting the results of the stress tests to EBA. Furthermore, the revised template puts more emphasis on reporting areas for improvement identified by a DGSs in the course of the execution of the stress tests.
The proposed revisions are based on the findings of the first EBA peer review of the DGS stress tests and resilience of national DGSs, which EBA published in a report in June 2020. In this report, EBA provided early indications of areas in which the DGS stress testing framework could be improved. EBA subsequently discussed the potential amendments to the framework with schemes and competent authorities, to develop the draft guidelines. The guidelines strive to strengthen the European system of national DGSs in accordance with Article 26(1) of the EBA Regulation.
Comment Due Date: June 11, 2021
Keywords: Europe, EU, Banking, DGS, Stress Testing, DGSD, Reporting, Peer Review, Deposit Guarantee Scheme, Resolution Framework, EBA
Previous ArticleMNB Issues Recommendation on Climate and Environmental Risks
In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.
The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.
The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.
The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.
The European Commission (EC) announced plans to defer the application of 13 regulatory technical standards under the Sustainable Finance Disclosure Regulation (2019/2088) by six months, from January 01, 2022 to July 01, 2022.
The European Insurance and Occupational Pensions Authority (EIOPA) proposed to amend the supervisory statement on supervision of run-off undertakings that are subject to Solvency II regulation.
The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.
The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.
Certain regulatory authorities in the US are extending period for completion of the review of certain residential mortgage provisions and for publication of notice disclosing the determination of this review until December 20, 2021.
The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.