November 17, 2017

EBA published final methodology for the 2018 EU-wide stress test, following a discussion with industry in summer 2017. The methodology covers all relevant risk areas and, for the first time, incorporates IFRS 9 accounting standards. The stress test exercise will be formally launched in January 2018, with the results to be published by November 02, 2018.

Similar to the 2016 exercise, the 2018 EU-wide stress test 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; operational risk, including conduct risk). In addition, banks are requested to project the effect of the scenarios on net interest income and to stress P&L and capital items not covered by other risk types. The methodology, in line with the 2016 approach, is based on constraints including a static balance sheet assumption, but with adjustments to incorporate IFRS 9 implementation. To give banks sufficient time to prepare for the 2018 exercise, the methodology is published well ahead of the formal launch, which will include relevant macroeconomic scenarios.

 

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Keywords: Europe, EU, Banking, Stress Testing, IFRS 9, EU-wide Stress Test, Methodology, EBA

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