Featured Product

    EBA Held Workshop to Discuss Future Approach on Stress Tests for Banks

    November 27, 2019

    EBA organized, on November 27 and 28, a research workshop on approaches, governance, and methodologies with respect to the future of stress tests in the banking sector. The EBA Chair José Manuel Campa opened the workshop by highlighting the importance of approaching long-term discussion on the future of stress tests and explaining the commitment to widely consult different stress test users before making any final decisions. The EBA Chair also summarized the identified shortcomings in EU stress tests in comparison to other jurisdictions and briefly discussed the potential top-down and bottom-up approaches. Additionally, Andrea Enria, Chair of the Supervisory Board of ECB, suggested a way to redesign the stress test by splitting it into three elements—a supervisory view, a bank view, and a macro view.

    According to him, redesigning would ensure that the results can still be compared across banks and that the exercise does not consume too many resources. The supervisory view would, by and large, be a more efficient version of the current stress test. That is, it would still be based on a constrained bottom-up approach. The main difference is that because of a shift in focus when publishing the results, the supervisory view requires fewer resources than the current approach. The focus for publication would be on the capital depletion per bank. Compared with the current approach, this would require far less granular quality assurance by supervisors.

    The bank view would not only help to make the results more realistic and relevant but it would also help to maintain transparency, which would be more limited in the supervisory view. The bank view would be the new element of the exercise. It would be run in parallel to the supervisory view and would give banks more freedom. They would have to apply the EBA methodology, but would be allowed to relax some of the constraints. Banks could thus better account for their individual risk profile and vulnerabilities. Overall, this would allow them to predict more accurately how the stress scenario would affect their balance sheet.

    Finally, the macro view would make it possible to simulate events that are relevant at the macro level. However, the macro view should not provide a third set of stress test results but should rather supplement the supervisory view with a top-down sensitivity analysis. It would help illustrate how the results might change if the central scenario were modified or different methodological assumptions were used. This would support the high-level narrative of the supervisory view. Mr. Enria concluded that the guiding principles for any future changes to the European stress test should be "realism, relevance, cost-efficiency (for both supervisors and the industry), and transparency."

     

    Related Links

    Keywords: Europe, EU, Banking, Stress Testing, Supervisory View, Bank View, Macro View, Bottom-Up Stress Test, Top-Down Stress Test, ECB, EBA 

    Featured Experts
    Related Articles
    News

    OSFI Outlines Prudential Policy Priorities for Coming Months

    OSFI has set out the near-term priorities for federally regulated financial institutions and federally regulated private pension plans for the coming months until March 31, 2022.

    May 06, 2021 WebPage Regulatory News
    News

    BIS Announces TechSprint on Innovative Green Finance Solutions

    Under the Italian G20 Presidency, BIS Innovation Hub and the Italian central bank BDI launched the second edition of the G20 TechSprint on the lookout for innovative solutions to resolve operational problems in green and sustainable finance.

    May 06, 2021 WebPage Regulatory News
    News

    EBA Proposed Regulatory Standards for Central Database on AML/CFT

    EBA proposed the regulatory technical standards on a central database on anti-money laundering and countering the financing of terrorism (AML/CFT) in EU.

    May 06, 2021 WebPage Regulatory News
    News

    ECB Responds to EC Consultation on Crisis Management Framework

    ECB published its response to the targeted EC consultation on the review of the bank crisis management and deposit insurance framework in EU.

    May 06, 2021 WebPage Regulatory News
    News

    ACPR Publishes Version 1.0.0 of RUBA Taxonomy

    ACPR published Version 1.0.0 of the RUBA taxonomy, which will come into force from the decree of January 31, 2022.

    May 06, 2021 WebPage Regulatory News
    News

    BCBS, CPMI, and IOSCO to Survey Market Participants on Margin Calls

    BCBS, CPMI, and IOSCO (the Committees) are inviting entities that participate in market infrastructures and securities markets through an intermediary as well as non-bank intermediaries to complete voluntary surveys on the use of margin calls.

    May 05, 2021 WebPage Regulatory News
    News

    ECB Amends Decision on TLTRO III

    ECB published Decision 2021/752 to amend Decision 2019/1311 on the third series of targeted longer-term refinancing operations or TLTRO III.

    May 05, 2021 WebPage Regulatory News
    News

    Central Bank of Ireland Issues Draft Template for AnaCredit Reporting

    The Central Bank of Ireland published Version 2.7 of the draft credit data template and rules for monthly AnaCredit reporting by banks.

    May 05, 2021 WebPage Regulatory News
    News

    OSFI Consults on Revisions to BCAR and Leverage Requirements Returns

    OSFI proposed revisions to the Basel Capital Adequacy Reporting (BCAR) and leverage requirements returns for the 2023 reporting, with the comment period ending on July 09, 2021.

    May 04, 2021 WebPage Regulatory News
    News

    EBA Seeks Views on Revisions to Nonperforming Loan Data Templates

    EBA published a discussion paper on review of the standardized nonperforming loans (NPL) transaction data templates, along with the proposed revised NPL data templates.

    May 04, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6936