EBA issues 2020 EU-wide stress test methodology for discussion

The European Banking Authority (EBA) published today the 2020 EU-wide stress test draft methodology, templates and template guidance, which will be discussed with the industry. The 2020 exercise will assess EU banks' resilience to an adverse economic shock and inform the 2020 Supervisory Review and Evaluation Process (SREP). The methodology covers all risk areas and builds on the methodology prepared for the 2018 exercise, while improving some aspects based on the lessons learnt. The preliminary list of institutions participating in the exercise as well as the timeline are also released today.

The 2020 EU-wide stress test will be carried out at the highest level of consolidation on a sample of 50 banks, of which 38 from the Euro Area, covering broadly 70% of the banking sector in the euro area, the non-Eurozone Member States and Norway. 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 and forward looking capital plans.

The final methodology will be published by the end of the year. The EU-wide stress test will be  launched in January 2020 and the results published by the end of July.

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 2020 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 is 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. For this purpose, explicit questions for banks have been included in the draft methodological note for some topics.
• UK banks have preliminarily been excluded from the sample under the assumption that, barring any transitional arrangements in the withdrawal agreement, the UK will leave the EU by 31 October 2019 and, therefore, UK banks will not participate in the 2020 EU-wide stress test. Under the same assumption, HSBC France has been included in the sample. The preliminary  list of institutions that are included in the sample can be seen in the Annex I of the Methodological note.