EBA Publishes Methodology and Draft Templates for Stress Tests in 2020
EBA published a package for the 2020 EU-wide stress test exercise for banks. The package includes the final methodology, draft templates, and template guidance, along with the key milestones of the exercise. The methodology and templates cover all relevant risk areas and incorporate the feedback received during the discussion with the industry in the Summer of 2019. The stress test exercise will be formally launched in January 2020 and the results will be published by July 31, 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
Keywords: Europe, EU, Banking, Stress Testing, Methodology, Templates, EU-wide Stress Test, Stress Test 2020, EBA
Featured Experts
Metin Epözdemir
Metin Epözdemir helps European and African banks with design and implementation of credit risk, stress testing, capital management, and credit loss accounting solutions.
Amnon Levy
Financial researcher; authority in credit portfolio management and AI/ML, risk-based pricing, climate and credit, CECL/IFRS 9; credit and ALM
Emil Lopez
Credit risk modeling advisor; IFRS 9 researcher; data quality and risk reporting manager
Previous Article
PRA Publishes Annual List of G-SIIs and O-SIIsRelated Articles
EC Regulation Sets Out Standards for Reporting and Disclosure of MREL
EC published the Implementing Regulation 2021/763 that lays down implementing technical standards for supervisory reporting and public disclosure of the minimum requirement for own funds and eligible liabilities (MREL).
EBA Report Notes Loan Origination Should Remain in Supervisory Focus
EBA published a report that examines the convergence of prudential supervisory practices in 2020 and offers conclusions of the EBA college monitoring activity.
APRA Decides to Standardize Submission Date for Quarterly Reporting
APRA announced the standardization of quarterly reporting due dates for authorized deposit-taking institutions.
ECB Working Group Publishes Recommendations on EURIBOR Fallbacks
The private sector working group of ECB on euro risk-free rates published the recommendations to address events that would trigger fallbacks in the Euro Interbank Offered Rate (EURIBOR)-related contracts, along with the €STR-based EURIBOR fallback rates (rates that could be used if a fallback is triggered).
Bundesbank Publishes Supporting Documentation for Reporting by Banks
Bundesbank published a list of "EntryPoints" that are accepted in its reporting system; the list provides taxonomy version and name of the module against each EntryPoint.
EBA Publishes Phase 1 of Reporting Framework 3.1
EBA published the phase 1 of its reporting framework 3.1, with the technical package covering the new reporting requirements for investment firms (under the implementing technical standards on investment firms reporting).
IOSCO Sees Support for Mandatory Sustainability Reporting
The Sustainable Finance Taskforce of IOSCO held two roundtables, with global stakeholders, on the IOSCO priorities to enhance the reliability, comparability, and consistency of sustainability-related disclosures and to collect views on the practical implementation of a global system architecture for these disclosures.
APRA to Finalize Capital Adequacy Standard Revisions by January 2022
Asia Pacific Australia Banking APS 111 Capital Adequacy Regulatory Capital Basel RBNZ APRA
ESMA Issues Guidelines on Outsourcing to Cloud Service Providers
ESMA published the final guidelines on outsourcing to cloud service providers.
EBA Publishes Data on Deposit Guarantee Schemes
EBA published annual data for two key concepts and indicators in the Deposit Guarantee Schemes (DGS) Directive—available financial means and covered deposits.
