EBA launches discussion on 2023 EU-wide stress test methodology

The European Banking Authority (EBA) published today its 2023 EU-wide stress test draft methodology, templates and template guidance, which will be discussed with the industry. The methodology covers all risk areas and builds on the one prepared for the 2021 EU wide stress test. Some aspects of the methodology have been improved based on the lessons from the 2021 exercise. As a new feature, the projections on net fee and commission income (NFCI) will be based on a top-down model. This is a first step of revising the EU-wide stress test framework towards a hybrid (bottom-up and top-down) approach. Also, the sample coverage has been increased. An additional 26 banks have been added to the stress test sample compared to the 2021 exercise and further proportionality has been introduced into the methodology. The 2023 exercise will assess EU banks' resilience to an adverse economic shock and inform the 2023 Supervisory Review and Evaluation Process (SREP).

The EBA methodology will continue to rely mainly on a constrained bottom-up approach. However, following the EBA decision to move to a hybrid framework on a step-by-step approach, projections for NFCI will be provided to banks based on supervisory top-down models.

The sample for the 2023 EU-wide stress test has been enlarged compared to previous exercises. The banks participating in the 2023 exercise represent around 75% of the banking sector assets in the Euro Area, the non-Eurozone Member States and Norway, increasing it from 70% in the previous exercises. As a result, the 2023 EU-wide stress test will be carried out at the highest level of consolidation covering 76 banks, of which 63 are from the Euro Area, a notable increase in coverage compared to previous exercises, in which around 50 banks from the EU and Norway were included. The methodology includes additional proportionality features for certain banks, to foster efficiency, while maintaining relevance of results and transparency.

No single capital threshold has been set for the 2023 exercise as banks will be assessed against relevant supervisory capital ratios under a static balance sheet. The stress test results will be used as input into the Supervisory Review and Evaluation Process (SREP), under which decisions are made on appropriate bank capital resources and forward-looking capital plans.

The final methodology will be published by the end of 2022. The EU-wide stress test will be launched in January 2023 and the results are expected to be published by the end of July 2023.

Notes for editors

• 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 EU banks and the EU banking system to shocks, and to challenge the capital position of EU banks. The exercise is based on a common methodology and a set of templates that capture starting point data and stress test results.
• The 2023 EU-wide stress test is initiated and coordinated by the EBA in close cooperation with the European Systemic Board (ESRB), Competent Authorities (including the Single Supervisory Mechanism – SSM) and the European Central Bank (ECB). Scenarios, methodology, minimum quality assurance guidance, templates and template guidance will be agreed by the EBA's Board of Supervisors. The macroeconomic adverse scenario and any risk type specific shocks linked to the scenario will be developed by the ESRB and the ECB in close cooperation with Competent Authorities and the EBA.
• The draft methodology and draft templates are the starting point for an informal discussion with banks so as to receive their input, which will be taken into account when finalising both documents.
• The preliminary list of institutions that are included in the sample can be seen in the Annex I of the methodological note.