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The European Banking Authority (EBA) informed that the 2016 EU-wide banking stress test exercise will be carried out at the highest level of consolidation on a sample of banks covering broadly 70% of the banking sector in the EU, as expressed in terms of total consolidated assets as of end 2014. 53 EU banks will participate in the exercise, 39 of which fall under the jurisdiction of the Single Supervisory Mechanism (SSM). No single capital threshold is defined for this exercise as banks will be assessed against relevant supervisory capital ratios under a static balance sheet and the results will inform the 2016 round of Supervisory Review and Evaluation Processes (SREP) under which decisions are made on appropriate capital resources and forward looking capital plans are challenged.
The resilience of EU banks will be assessed against a common macroeconomic baseline and adverse scenario based on year-end 2015 figures, and applied over a period of three years to end-2018. The approach of the exercise is that of constrained bottom-up stress test, where banks will be required to project the impact but subject to strict constraints defined in the common methodology.
The objective of the EU-wide stress test is to provide supervisors, banks and other market participants with a common analytical framework to consistently compare and assess the resilience of the EU banking system to shocks.
The 2016 EU-wide stress test will be launched at the end of February 2016 with a publication of the final methodology and templates as well as the scenarios. The outcomes of the exercise, including banks' individual results, are expected to be published at the beginning of Q3 2016.
Similar to the 2014 exercise, the 2016 EU-wide stress test is primarily focused on the assessment of the impact of risk drivers on the solvency of banks. Banks are required to stress test a common set of risks (credit risk including securitisations, market risk and counterparty credit risk, operational risk including conduct risk). In addition, banks are requested to project the effect of the scenarios on net interest income and to stress P&L and capital items not covered by other risk types. The 2016 exercise adds an explicit treatment of conduct risk and FX lending to its scope.
Draft 2016 EU-wide ST methodological note
Draft 2016 EU-wide ST templates