EBA proposed to revise the guidelines on the stress tests conducted by national Deposit Guarantee Schemes (DGSs) under the Deposit Guarantee Schemes Directive (DGSD). The proposed revisions will extend the scope of the DGS stress testing, by requiring more tests that will cover additional aspects of DGS interventions. EBA also proposed a revised reporting template for DGSs to share the outcomes of the stress tests. The deadline for the DGSs to submit their next reporting template is set on June 16, 2024. The comment period on the revised guidelines ends on June 11, 2021. Post consultation, the guidelines will be subject to EBA for final adoption.
The proposed revision will extend the scope of the DGS stress testing, by requiring more tests that will cover additional aspects of DGS interventions. Amending the current guidelines is necessary to ensure that all DGSs are well-prepared to perform each of their legally mandated functions, so that depositors are sufficiently protected in all cases. It is also necessary to ensure the stress testing framework is more harmonized so that EBA can fulfil its mandate of conducting robust peer reviews. The proposed framework will achieve greater harmonization and comparability, to enable EBA to carry out a robust peer review of national DGS stress tests in 2024/25. The revised guidelines would further specify the requirements in relation to the design, the execution, and the reporting of the results of the DGS stress tests. The amendments proposed in the revised guidelines are aimed to:
- Require DGSs to stress test their ability to perform all of the interventions they are legally mandated to perform, including reimbursing depositors, contributing to resolution and (depending on national law provisions) to failure prevention and insolvency proceedings.
- Require DGSs to stress test their ability to have access, in due time, to all of their funding sources, including extraordinary ex-post contributions and alternative funding arrangements, such as a credit line. The ability to raise these resources should be tested irrespective of the amount of available ex-ante funds collected by the DGSs.
- Strengthen the cooperation between DGSs and different authorities by requiring to stress test interventions where cooperation with other authorities is necessary. The proposed revised guidelines specify how to assess the arrangements in place between DGSs and public authorities for obtaining information on problems detected at a credit institution that could give rise to DGS intervention. They also require DGSs to share the results of the DGS stress tests upon other authorities’ request.
- Encourage DGSs to choose stress testing scenarios with additional business continuity challenges or external circumstances that create extra stress for the DGSs to perform their functions, such as a pandemic, ICT failures, or other such events.
- Provide a more comprehensive, clear, and harmonized template for recording and submitting the results of the stress tests to EBA. Furthermore, the revised template puts more emphasis on reporting areas for improvement identified by a DGSs in the course of the execution of the stress tests.
The proposed revisions are based on the findings of the first EBA peer review of the DGS stress tests and resilience of national DGSs, which EBA published in a report in June 2020. In this report, EBA provided early indications of areas in which the DGS stress testing framework could be improved. EBA subsequently discussed the potential amendments to the framework with schemes and competent authorities, to develop the draft guidelines. The guidelines strive to strengthen the European system of national DGSs in accordance with Article 26(1) of the EBA Regulation.
Comment Due Date: June 11, 2021
Keywords: Europe, EU, Banking, DGS, Stress Testing, DGSD, Reporting, Peer Review, Deposit Guarantee Scheme, Resolution Framework, EBA
Previous ArticleSARB Updates Requirements for BA Returns for Banks
The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.
The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.
The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.
The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups
The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.
The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.
The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots.
The European Central Bank (ECB) published the results of its thematic review, which shows that banks are still far from adequately managing climate and environmental risks.
Among its recent publications, the European Banking Authority (EBA) published the final standards and guidelines on interest rate risk arising from non-trading book activities (IRRBB)
The European Commission (EC) recently adopted regulations with respect to the calculation of own funds requirements for market risk, the prudential treatment of global systemically important institutions (G-SIIs)