EBA Welcomes ECA Recommendations for Improving Stress Tests in EU
EBA welcomed publication of a special report by the European Court of Auditors (ECA) on the EU-wide stress tests. This report is the result of an audit conducted by ECA on the 2018 EU-wide stress test, while also considering aspects of the 2016 exercise. The report presents findings of the independent review on the stress tests for banks in EU and sets out recommendations for improving the stress tests going forward. EBA acknowledged the efforts made by ECA in providing valuable insights to improve the efficiency of the EU-wide stress test in the future.
The findings of the independent review highlight the leading role of EBA in providing transparency of information on EU banks' data and acknowledge the effort made by the staff in coordinating the exercise, especially considering the limited resources available. Among the recommendations listed, ECA prescribes to develop a top-down approach for stress tests to complement the current bottom-up approach, to expand the criteria to assess the sample of the exercise, and to publish all banks' minimum requirements. ECA also recommends that EBA should try different types of scenarios from one exercise to another (such as stressing different risks) and consider adding additional, more country-specific shocks or sensitivity analyses.
EBA takes note of the recommendations made by ECA and welcomes the constructive challenges that the independent review provides, being cognizant that the EU-wide stress test can be improved further. EBA is committed to considering the recommendations of ECA in its ongoing discussion on possible longer-term changes to the EU-wide stress test. In addition, EBA has already introduced greater transparency on additional own funds requirements (Pillar 2 requirements) in the 2020 EU-wide stress test draft methodology, in line with the ECA recommendation. EBA will keep ECA informed on the progress made in implementing the recommendations. The last section of the report also presents EC response to the findings of this independent review by ECA.
Related Links
Keywords: Europe, EU, Banking, Stress Testing, Basel III, Systemic Risk, ECA, EBA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
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
Previous Article
BIS Publishes Remarks of Guy Debelle on Progress on Benchmark ReformNext Article
IASB Issues Updates of Meetings for April 2019Related Articles
PRA Finalizes Supervisory Approach for Non-Systemic Banks in UK
PRA published the policy statement PS8/21, which contains the final supervisory statement SS3/21 on the PRA approach to supervision of the new and growing non-systemic banks in UK.
EBA Finalizes Standards on Methods of Prudential Consolidation
EBA published a report that sets out the final draft regulatory technical standards specifying the conditions according to which consolidation shall be carried out in line with Article 18 of the Capital Requirements Regulation (CRR).
EBA Updates List of Other Systemically Important Institutions in EU
EBA updated the list of other systemically important institutions (O-SIIs) in EU.
BCBS Report Concludes Basel Risk Categories Can Capture Climate Risks
BCBS published two reports that discuss transmission channels of climate-related risks to the banking system and the measurement methodologies of climate-related financial risks.
UK Authorities Welcome FSB Review of their Remuneration Regime
UK Authorities (FCA and PRA) welcomed the findings of FSB peer review on the implementation of financial sector remuneration reforms in the UK.
PRA and FCA Letter on Addressing Risks from Use of Deposit Aggregators
PRA and FCA jointly issued a letter that highlights risks associated with the increasing volumes of deposits that are placed with banks and building societies via deposit aggregators and how to mitigate these risks.
MFSA to Amend Banking Act and Rules in Coming Months to Transpose CRD5
MFSA announced that amendments to the Banking Act, Subsidiary Legislation, and Banking Rules will be issued in the coming months, to transpose the Capital Requirements Directive (CRD5) into the national regulatory framework.
EC Delegated Regulation on Specialized Lending Exposures Under CRR
EC finalized the Delegated Regulation 2021/598 that supplements the Capital Requirements Regulation (CRR or 575/2013) and lays out the regulatory technical standards for assigning risk-weights to specialized lending exposures.
OSFI Proposes to Enhance Assurance Expectations for Basel Returns
OSFI launched a consultation to explore ways to enhance the OSFI assurance over capital, leverage, and liquidity returns for banks and insurers, given the increasing complexity arising from the evolving regulatory reporting framework due to IFRS 17 (Insurance Contracts) standard and Basel III reforms.
ECB Issues Results of Benchmarking Analysis of Recovery Plans of Banks
ECB published results of the benchmarking analysis of the recovery plan cycle for 2019.
