EBA published its first peer review report on the stress tests and the resilience of Deposit Guarantee Schemes. The review, which is mandated under the Deposit Guarantee Schemes Directive or DGSD, was based on the results of the Deposit Guarantee Scheme stress tests and intended to identify good practices and areas for improvement. The report presents the results of an assessment of 135 Deposit Guarantee Scheme stress tests performed by 32 Deposit Guarantee Schemes from 27 member states in EU. In the report, EBA highlighted certain shortcomings and provided early indications on how to improve and enhance the framework.
The DGSD requires member states to ensure that Deposit Guarantee Schemes perform stress tests of their systems. In 2016, EBA issued guidelines on stress tests of Deposit Guarantee Schemes that set out the scope, principle-based requirements, and a list of four "priority tests" that Deposit Guarantee Schemes are required to perform. The DGSD, in turn, requires EBA to use these reports to conduct a peer review of all Deposit Guarantee Schemes across EU, at least every five years. In this exercise, the priority tests covered operational and funding capabilities of Deposit Guarantee Schemes, credit institutions’ single customer view (SCV) files containing depositor information to prepare for a Deposit Guarantee Scheme payout, and cross-border cooperation between Deposit Guarantee Schemes in case of cross-border branches. EBA concluded that such tests have become an established tool to prepare for Deposit Guarantee Scheme interventions.
EBA is of the view that, using the grading system outlined in the guidelines on stress tests of Deposit Guarantee Schemes, the overall resilience of Deposit Guarantee Schemes across the EU is "fair," which is the second best result, after "optimal." This means that the identified shortcomings are isolated and/or can easily be addressed by the Deposit Guarantee Schemes at the point of failure and are unlikely to affect the ability of Deposit Guarantee Schemes to perform their tasks in line with the DGSD. The report also identified good practices that were deployed by a number of Deposit Guarantee Schemes and that can be considered by the other Deposit Guarantee Schemes. EBA also highlighted certain shortcomings and provided early indications on how to improve and enhance the framework. In particular, EBA found that the divergence in the type of exercises performed and in the way outcomes were reported made it difficult for EBA to compare the tests between Deposit Guarantee Schemes, thus hampering the desired consistency. EBA, therefore, provided early indications on how to enhance the comparability for future peer reviews. These early indications will also serve as input for any potential future revision of the EBA guidelines on stress tests of Deposit Guarantee Schemes.
While the peer review performed by EBA is a regular exercise required by the DGSD, it also includes provisions stemming from the outbreak of the COVID-19 pandemic. The report outlines lessons learned from a real-life payout case in one EU member state that coincided with the pandemic. In relation to the COVID‐19 pandemic, the report includes an early indication of how to improve the framework by exploring how to incentivize Deposit Guarantee Schemes to perform special tests that allow them to assess scenarios resulting in severe business continuity problems, such as a pandemic, power outages, or significant operational disruptions.
Keywords: Europe, EU, Banking, DGS, DGSD, Deposit Guarantee Schemes, Peer Review, Resolution Framework, COVID-19, EBA
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
The Australian Prudential Regulation Authority (APRA) has published the findings of its latest climate risk self-assessment survey conducted across the banking, insurance, and superannuation industries.
The French Prudential Supervisory Authority (ACPR) published a notice related to the methods for calculating and publishing prudential ratios under the Capital Requirements Directive (CRD IV) and the minimum requirement for own funds and eligible liabilities (MREL).
The Financial Stability Institute (FSI) of the Bank for International Settlements recently published a paper proposing a framework for classifying financial stability regulation as either entity-based or activity-based.
The European Insurance and Occupational Pension Authority (EIOPA) published the risk dashboard based on Solvency II data and the final version of the application guidance on climate change materiality assessments and climate change scenarios in the Own Risk and Solvency Assessment (ORSA).
The European Banking Authority (EBA) and the European Central Bank (ECB) published their responses to the consultations of the International Sustainability Standards Board (ISSB) and the European Financial Reporting Advisory Group (EFRAG) on sustainability-related disclosure standards.
A Consultative Group on Risk Management (CGRM) at the Bank for International Settlements (BIS) published a report that examines incorporation of climate risks into the international reserve management framework.
The European Banking Authority (EBA) published the final guidelines on liquidity requirements exemption for investment firms, updated version of its 5.2 filing rules document for supervisory reporting, and Single Rulebook Question and Answer (Q&A) updates in July 2022.
The European Insurance and Occupational Pensions Authority (EIOPA) published Version 2.8.0 of the Solvency II data point model (DPM) and XBRL taxonomy.
The European Union published, in the Official Journal of the European Union, an opinion from the European Economic and Social Committee (EESC); the opinion is on the proposal for a regulation to amend the Capital Requirements Regulation (CRR).
HM Treasury published a draft statutory instrument titled “The Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2022,” along with the related explanatory memorandum and impact assessment.