EBA publishes peer review on the implementation of the stress-testing guidelines

12 November 2013

The aim of the peer review was to assess and compare the effectiveness of the supervisory activities related to the review of credit institutions' own stress-testing frameworks across the EU, as well as the implementation of related provisions by competent authorities.

In line with its mandate to assess the degree of convergence to the EBA guidelines, the EBA selected the guidelines on stress-testing to perform a peer review analysis given the special emphasis placed on this topic by NCAs over the last couple of years.

The peer review work focused on methods and examples of best practice, and covered (i) stress-testing governance structures and their use, (ii) possible methodologies including the appropriate severity of scenarios and potential mitigating measures during stressed conditions, and (iii) the overall impact of risk on institutions.

The following conclusions emerged from the peer review and in particular from on-site visits performed by the EBA:

• All NCAs' resource models have benefits. However, irrespective of the model, dedicated stress-testing technical experts should be involved.
• Stress test instructions at national level are currently spread over various supervisory manuals, hence the need for centralised documents.
• NCAs often focus on the (few) largest banks in their respective jurisdictions, and devote far less attention to other banks.
• The incorporation of stress-testing into the Supervisory Review and Evaluation Process (SREP) and the joint decision process is handled differently across NCAs.
• Many of the assessed NCAs carry out substantial work on top-down stress-testing, from both a micro- and macro-prudential perspective.
• Very few NCAs require reverse stress-testing, and when so it is often as part of a recovery and resolution plan.

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