EU-wide Stress Test Draft Methodology and Templates

European Banking Authority (EBA)

The EBA is required, in cooperation with the European Systemic Risk Board (ESRB), to initiate and coordinate Union-wide stress tests to assess the resilience of financial institutions to adverse market developments
In this regard, the EBA published on November 2015 the draft methodology and templates to be considered in the EU-wide stress test to be carried out from late-February 2016.

The objective of the 2016 EU-wide stress test methodology is to provide a common analytical framework to consistently compare and assess the resilience of EU banks to shocks and to challenge the capital position of EU banks.

The exercise is based on a common methodology internally consistent and relevant scenarios, and a set of templates to capture starting point data and stress test results to allow a rigorous assessment of the banks in the sample.

  • The common methodology defines how banks should calculate the stress impact of the common scenarios and also sets the constraints for the bottom-up calculations.
  • The guidance aims at providing banks support for performing the EU-wide stress test although it does not cover the quality assurance process of possible supervisory measures.
  • The templates are used for collecting data from the banks as well as for publicly disclosing the outcome of the exercise.

The technical note prepared by Management Solutions’ R&D department analyzes and summarizes the main aspects, methodology and templates of the EU-wide stress test to be carried out from late-February 2016.

Executive summary

The 2016 stress test will use a bottom-up static balance sheet approach and a common baseline and adverse scenario although, unlike 2014 stress test, this is not a pass-fail exercise.

Scope of application:

The stress test will cover 53 EU banks (39 from SSM countries), which broadly cover 70% of the national banking sector in each EU Member State and Norway.

  • Selection criteria: hold a minim of €30 billion in assets.
  • CAs could include additional institutions in their jurisdiction if they have a minimum of €100 billion in assets.
  • Banks subject to mandatory restructuring plans agreed by the EC could be included in the sample by CAs if they were assessed to be near the completion of the plans.

Main content:

  • Main aspects of the exercise, including: calendar; key aspects; sample of banks; and process.
  • Methodology to be used by risk type, including: credit risk; market risk, counterparty credit risk and CVA; Net Interest Income; conduct risk and other operational risk; and non-interest income and expenses.
  • List of covered Banks
  • Templates, compared to the 2014 exercise.

Download the technical note by clicking here.