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November 02, 2018

EBA shows results of the stress tests conducted on bank in EU in 2018. The stress test shows that the 33 largest banks directly supervised by ECB have become more resilient to financial shocks over the past two years.

Overall, the EU-wide stress test covered 48 banks, representing 70% of banking assets in the EU. The 33 participant banks under the supervision of ECB account for 70% of euro area banking assets. Despite a more severe adverse scenario than in the 2016 stress test, the average common equity tier 1 (CET 1) capital ratio of all 33 banks after a three-year stress period was higher at 9.9%, up from 8.8% two years ago. Owing to their efforts to address legacy assets, along with the consistent build-up of capital in recent years, the average capital base of the 33 banks when they entered the stress test was much stronger, with CET 1 standing at 13.7%, up from 12.2% in 2016. One of the main features of the 2018 exercise was the implementation of IFRS 9. Banks provided the starting point according to actual figures at the end of 2017 and IFRS 9 restated figures. The negative impact of the first implementation of IFRS 9 on banks' aggregate CET 1 capital ratio is -20 basis points (bps)* on a fully loaded basis and -10 bps on a transitional basis.

Stress test helps the supervisor to determine Pillar 2 capital in its annual Supervisory Review and Evaluation Process (SREP). Supervisors ask banks to build up Pillar 2 capital as a prudential capital buffer, in addition to the legally required minimum capital. Pillar 2 is tailored to a bank’s characteristics, such as its business model, governance structure, or risk management framework. ECB is preparing the 2018 SREP decisions for the banks it supervises. In parallel to the EU-wide EBA stress test, ECB conducted its own stress test for banks that are under its direct supervision, but not covered in the EBA sample.

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Keywords: Europe, EU, Banking, Stress Testing, 2018 EU Stress Testing, IFRS 9, Regulatory Capital, Stress Test Results, SREP, ECB, EBA

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