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, and published a report analyzing the impact of the introduction of supporting factor to infrastructure lending under the Capital Requirements Regulation or CRR. EBA also published the final methodology, draft templates, and template guidance for the 2023 EU-wide stress test along with the milestone dates for the exercise. Annex 1 to the methodology lists the sample of banks participating in the exercise. The stress test exercise will be launched in January 2023 with the publication of the macroeconomic scenarios while the results are expected to be published by the end of July 2023.
The stress test is aimed to provide supervisors, banks, and other market participants with a common analytical framework to consistently compare and assess the resilience of EU banks and the EU banking system to shocks and to challenge the capital position of EU banks. The published stress test methodology is based on a set of templates that capture starting point data and stress test results to allow a rigorous assessment of the banks in the sample. The 2023 EU-wide stress test uses a constrained bottom-up approach with some top-down elements. Balance sheets are assumed to be constant. Focus is on the assessment of the impact of adverse shocks on bank solvency. Banks are required to estimate the evolution of a common set of risks (credit, market, counterparty, and operational risk) under an adverse scenario. Banks are also asked to project the impact of the scenarios on main income sources. For net fee and commission income, risk-weights of securitization, and the credit loss path of sovereign exposures, banks are required to make use of prescribed parameters.
EBA has published the draft stress test templates, along with a template guidance, though they can still be subject to minor technical adjustments before their final publication. The methodology and templates cover all relevant risk areas and have considered the feedback received from industry. .All templates to be used in the 2023 EU-wide stress test refer to the specific version of supervisory reporting requirements in place as of December 31, 2022; this implies, for all templates, the use of FINREP and COREP standards for EBA reporting framework 3.2 (applicable for reports until December 31, 2022). In the case of resubmission of FINREP and COREP reports, templates should be filled in with the most updated data. When needed, banks should prove that a re-submission of FINREP/COREP is in process and explain the differences in the explanatory note. EBA has communicated the following key milestones, post the scheduled January 2023 launch of the EU-wide stress test exercise:
- First submission of results to the EBA at the beginning of April 2023
- Second submission to the EBA in mid-May 2023
- Third submission to the EBA at the end of June 2023
- Final submission to the EBA in mid-July 2023
- Publication of results by end-July 2023
- Statement on COP27
- Operationalization of IPUs
- Report on Infrastructure Supporting Factor
- Launch of Stress Test Methodology
- Methodological Note (PDF)
- Template Guidance (PDF)
- Stress Test Templates (XLSX)
Keywords: Europe, EU, Banking, Basel, Reporting, Stress Testing, Intermediate Parent Undertakings, Third-Country Groups, Infrastructure Supporting Factor, Lending, Reporting Framework 3.2, CRR, Regulatory Capital, EBA
Previous ArticleECB Sets Deadline for Banks to Meet Its Climate Risk Expectations
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 Financial Stability Board (FSB) and the Network for Greening the Financial System (NGFS) published a joint report that outlines the initial findings from climate scenario analyses undertaken by financial authorities to assess climate-related financial risks.
The Financial Stability Board (FSB) published a letter intended for the G20 leaders, highlighting the work that it will undertake under the Indian G20 Presidency in 2023 to strengthen resilience of the financial system.
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 Union has finalized and published, in the Official Journal of the European Union, a set of 13 Delegated and Implementing Regulations applicable to the European crowdfunding service providers.
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 Financial Accounting Standards Board (FASB) is seeking comments, until November 03, 2022, on the proposed technical and other conforming improvements for the 2023 GAAP Financial Reporting Taxonomy.