EBA issues 2020 EU-wide stress test methodology for discussion
EBA released templates and methodology guides and the timeline for the stress test, along with the preliminary list of 50 sample institutions participating in the exercise. The final methodology will be published by the end of 2019. The EU-wide stress test will be launched in January 2020 while results of the test will be published by the end of July.
The stress testing exercise will be based on a common methodology, internally consistent and relevant scenarios, and 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 methodology covers all risk areas and builds on the methodology prepared for the 2018 exercise. It defines how banks should calculate the stress impact of the common scenarios and sets constraints for their bottom-up calculations. The exercise is expected to be carried out based on year-end 2019 figures and the scenarios will be applied over a period of three years from the end of 2020 to the end of 2022. The 2020 exercise will assess solvency of EU banks to an adverse economic shock and inform the 2020 SREP.
The applicable regulatory framework includes decisions regarding the application of the CRR/CRD that were taken before 1 January 2020. These should be applied as of their entry into force. Therefore, definitions of CET1, Tier 1 and total capital that are valid during every year of the time horizon of the stress test should be applied (i.e. the CRR/CRD definition of capital with transitional arrangements as per December 2019, December 2020, December 2021 and December 2022).
The use of new internal models and modifications is mandatory if these are approved by 31 December 2019. If banks have implemented by 31 December 2019 a new definition of default, the new definition should be used in the stress test and an impact assessment of the new definition when compared to the previously implemented shall be part of the explanatory note.
No single capital threshold has been set for this exercise, as banks will be assessed against relevant supervisory capital ratios under a static balance sheet and the results will be an input to the SREP, under which decisions are made on appropriate capital resources P2G and forward-looking capital plans.
For more information or if you have any questions please contact:
Dr. Andreas Peter
+ 49 (0) 160 583 40 66
+49 (0)171 868 11 50