Preliminary package for the 2027 stress test

The European Banking Authority (EBA) has published the preliminary package for the 2027 European stress test, comprising the preliminary methodology, the template guidance, and the exercise templates. The package defines how institutions should project the impact of the baseline and adverse scenarios on capital, profit and loss, and risk-weighted assets (RWA), covering credit risk, market risk, counterparty credit risk, net interest income, operational risk, and non-financial income and expenses.

Preliminary package for the 2027 stress test

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Executive Summary

The 2027 EBA stress test maintains the approach followed in previous exercises, based on a common methodology, centrally defined scenarios, a three-year time horizon, and a bottom-up approach subject to supervisory constraints.

The main new features include early alignment with the future Supervisory Reporting Framework, entailing a substantial review of the templates and methodologies used in the exercise. In this regard, the package introduces significant changes to the credit risk, market risk and risk-weighted assets templates to facilitate alignment with the future supervisory reporting framework and the Capital Requirements Regulation III (CRR3).

In addition, the exercise incorporates a specific climate risk module, which will require institutions to measure the impact of climate transition shocks over the 2027–2029 period and of a physical flood shock in 2027 on credit losses, provisions, and impairments. The module does not require institutions to assess any direct impact on risk-weighted assets (RWA) or market risk and will be assessed separately from the core exercise.

Main Content

The content of the technical note is structured into the following main sections:

• Credit risk. Summarizes the changes to the provisions templates, including alignment with FINREP, the incorporation of a specific template for off-balance-sheet exposures, and updates to the sectoral template, REA templates, output floor, and provisions backstop.
• Market risk and CCR losses. Develops the treatment of the full revaluation of fair value positions, the recalculation of accounting and regulatory valuation reserves, the projection of client revenues from positions held for trading purposes, changes to counterparty risk projections and the update of the market REA component to align it with FRTB.
• Non-financial income and expenses. Sets out the main features of the exercise for the projection of income and expenses not related to interest, including the application of prescribed parameters for Non-Financial Components of Income (NFCI), the breakdown of administrative expenses, and the impact of exchange rates.
• Conduct risk and operational risk. Summarizes the treatment of conduct risk and operational risk losses, including the qualitative assessment of material events and the quantitative projection of non-material events.
• Net interest income. Describes the centralization of net interest income projections, the calculation of the margin on new business and the reference rate, the scope of the positions included, and the reduction in the breakdown by country and currency.
• Climate risks. Develops the new climate module, focused on the impact of transition and physical risks on the profit and loss account, with no impact on the core stress test results. It includes a three-year transition scenario and a one-year physical flood shock.

Download the technical note on the Preliminary package for the 2027 stress test (also available in Spanish).