EBA Issues Draft Methodology and Templates for 2023 Stress Tests
The European Banking Authority (EBA) published the draft methodology, templates, and template guidance for the European Union-wide stress test in 2023. The 2023 exercise will assess the resilience of banks in European Union to an adverse economic shock and inform the 2023 Supervisory Review and Evaluation Process (SREP). EBA expects the final methodology to be published by the end of 2022. The stress test exercise will be launched in January 2023, with the results expected to be published by the end of July 2023.
The draft methodology document describes the common methodology that defines how banks should calculate the stress impact of the common scenarios and sets constraints for the bottom-up calculations. In addition to setting these requirements, it aims to provide banks with adequate guidance and support for performing the European Union-wide stress test. The methodology lists components of banks’ projections for which banks are required to provide additional information in accompanying documents (for example, on the methods applied) as input to the quality assurance process. The draft methodology covers all risk areas and builds on the 2021 stress test exercise. The draft methodology will continue to rely mainly on a constrained bottom-up approach. However, following the EBA decision to move to a hybrid framework on a step-by-step approach, projections for net fee and commission income (NFCI) will be provided to banks based on supervisory top-down models. This is a first step of revising the stress test framework toward a hybrid (bottom-up and top-down) approach. Also, further proportionality has been introduced into the methodology and the sample coverage has been increased, with 26 banks having been added to the stress test sample of 50 banks in the 2021 exercise. Annex I to the methodology note contains the preliminary list of institutions that are included in the sample.
The draft template guidance provides technical guidance to the participating banks for populating the set of templates for the 2023 European Union-wide stress test. The draft guidance should be read in conjunction with the draft methodology, as most of the information needed for the population of the templates are included in the sub sections on the scope of application, on the definitions used in the chapter and on reporting requirements. The draft guidance covers general topics such as template types, data input and formats, and applied supervisory reporting standards. Each template is covered in a separate section containing a summary of the purpose and data of the template, followed by a description of its structure. All templates used in the 2023 stress test exercise refer to the specific version of supervisory reporting requirements in place as of December 31, 2022—this means the use of financial reporting framework (FINREP) and common reporting framework (COREP) standards for all templates as in the EBA reporting framework 3.2 (applicable for reports until December 31, 2022).
Keywords: Europe, EU, Banking, Stress Testing, Reporting, Templates, Guidance, Methodology, Basel, SREP, FINREP, COREP, Reporting Framework 3.2, EBA
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous ArticleBoE Issues Update on Ongoing Data Transformation Program
FINMA Approves Merger of Credit Suisse and UBS
The Swiss Financial Market Supervisory Authority (FINMA) has approved the takeover of Credit Suisse by UBS.
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
APRA Assesses Macro-Prudential Policy Settings, Issues Other Updates
The Australian Prudential Regulation Authority (APRA) published an information paper that assesses its macro-prudential policy settings aimed at promoting stability at a systemic level.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
MFSA Sets Out Supervisory Priorities, Issues Reporting Updates
The Malta Financial Services Authority (MFSA) outlined its supervisory priorities for 2023
German Regulators Issue Multiple Reporting Updates for Banks
Deutsche Bundesbank published the nationally deactivated validation rules for the German Commercial Code (HGB) users on the taxonomy 3.2, which became valid from December 31, 2022
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.