EBA launches 2023 EU-wide stress test

02 February 2023

The EU-wide stress test will be conducted on a much larger sample compared to previous years, covering 70 EU banks and 75% of total banking assets in the EU.

• The exercise assesses the performance of banks under a baseline and adverse scenario during the period 2023-25.
• The adverse scenario assumes a hypothetical worsening of geopolitical tensions leading to a severe decline in GDP with persistent inflation and high interest rates. The adverse scenario is designed to ensure a significant severity of various macro-economic and financial shocks across all EU countries and, for the first time, depicts a breakdown of the shocks (on real gross value added) by economic sectors.

The European Banking Authority (EBA) launched today the 2023 EU-wide stress test and released the macroeconomic scenarios. This year’s EU-wide stress test is designed to provide valuable input for assessing the resilience of the European banking sector in the current uncertain and changing macroeconomic environment. The adverse scenario is based on a narrative of hypothetical heightened geopolitical tensions, with high inflation and higher interest rates having strong adverse effects on private consumption and investments, both domestically and globally. In terms of GDP decline, the 2023 adverse scenario is the most severe used in the EU wide stress up to now. The severe nature of the adverse scenario reflects a deliberate choice and reflects the purpose of the stress test exercise, which is to assess the resilience of the European banking system to a hypothetical severely deteriorated macro-environment. The EBA expects to publish the results of the exercise at the end of July 2023.

Objectives and the scope of the stress test

The stress test assesses the solvency of EU banks in a hypothetical adverse macroeconomic scenario over a three-year horizon (2023-25). The objectives of the stress test are to:

• assess and compare the overall resilience of EU banks to relevant severe economic shocks.
• assess if bank capital levels are sufficient to ensure banks can support the economy in periods of stress.
• foster market discipline through transparent publication of consistent, granular and comparable data at a bank-by-bank level.
• provide input to the Supervisory Review and Evaluation Process (SREP) for competent supervisory authorities.

The EU-wide stress test will be conducted on a sample of 70 EU banks – thereof 57 from countries which are members of the Single Supervisory Mechanism (SSM) – covering roughly 75% of total banking sector assets in the EU and Norway. Compared to previous EU-wide stress tests, the 2023 exercise covers an additional 20 banks.

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