Consultation paper on draft guidelines on stress testing

European Banking Authority (EBA)

The EBA is mandated to foster sound and effective supervision across the EU arising from the requirements specified in the CRD IV. In this regard, it aims at achieving convergence of practices followed by institutions and competent authorities (CAs) for stress testing across the EU.

The EBA published in December 2015 a consultation paper on draft guidelines on stress testing with the aim of providing detailed guidance to be complied with by institutions when designing and conducting a stress test (ST) program, providing guidance with a view to ensuring convergence for supervisory stress testing in the context of the SREP performed by competent authorities. This consultation paper intends to provide:

  • Common organisational requirements, methodologies and processes for the performance of stress testing by institutions as part of their risk management processes.
  • Supervisory assessment of the institution’s stress testing.
  • Common methodologies to be used by competent authorities when conducting supervisory stress test in the context of their SREP.

These guidelines do not set methodologies for the stress test conducted by the EBA in cooperation with other complement authorities. However, they do describe the range of stress test help to set the appropriate context for the consideration of future EBA stress test as one part of the suite supervisory stress test.

This document prepared by Management Solutions R&D department summarises the proposed guidelines and analyses their main implications to institutions and competent authorities.

Executive summary

The proposed guidelines cover stress testing conducted by institutions, supervisory assessment of the institution´s stress testing and supervisory stress testing.

Scope of application:

  • For systematically-important institutions these GL are applicable in their entirely.

  • For other institutions the GL are calibrated in accordance with their size and complexity of their activities.

Main content:

  • Stress testing by institutions: main features of the stress testing program (i.e. content, documentation and assessment); governance structures of the stress testing program; data infrastructure; application of the stress testing program; main features (i.e. scope; methodology; model risk, etc.); reverse stress testing; and supervisory assessment.

  • Supervisory stress testing: different forms of supervisory stress testing and objectives; the use for SREP purposes; organization, resources and communication aspects, and possible methodologies.
  • Outcomes of the stress test: these outcomes provide a forward-looking assessment of projected stressed capital needs to the competent authorities.

Download the technical note by clicking here