EBA Publishes Methodology and Draft Templates for Stress Tests in 2020

Similar to the 2018 exercise, the 2020 EU-wide stress test is a bottom-up exercise with constraints, including a static balance sheet assumption. The exercise is primarily focused on the assessment of the impact of risk drivers on the solvency of banks. Banks are required to stress a common set of risks: credit risk, including securitizations; market risk and counterparty credit risk; and operational risk, including conduct risk. Banks are requested to project the impact of the scenarios on net interest income and to stress profit and loss (P&L) and capital items not covered by other risk types. A draft version of the stress test templates has been published along with a template guidance that contains instructions on how to populate them. The draft version of the templates can still be subject to minor technical adjustments before their final publication. 

The accompanying guidance describes the common methodology that 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, it aims to provide banks with adequate guidance and support for performing the stress test. The following are the key milestone dates of the stress test exercise:

• Launch of the exercise at the end of January 2020
• First submission of results to EBA at the beginning of April 2020
• Second submission to EBA in mid-May 2020
• Final submission to EBA in mid-July 2020
• Publication of results by the end of July 2020

The aim of the EU-wide stress test is to assess the resilience of EU banks to a common set of adverse economic developments to identify potential risks, inform supervisory decisions, and increase market discipline. The EU-wide stress tests of EBA are conducted using consistent methodologies, scenarios, and key assumptions that have been developed jointly with other authorities. The exercise is coordinated by EBA and conducted in cooperation with ECB, ESRB, EC, and the competent authorities from all relevant national jurisdictions.

Related Links

• Press Release
• Methodological Note (PDF)
• Template Guidance (PDF)
• Templates (XLSX)

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