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Stress tests

European Banking Supervision uses stress tests to assess how well banks are able to cope with financial and economic shocks. Stress test results help supervisors identify banks’ vulnerabilities and address them early on in the supervisory dialogue with banks.

Types of stress tests

The ECB conducts several types of stress test:

  • Annual stress tests
  • Stress tests as part of comprehensive assessments (a large-scale financial health check of banks, consisting of a stress test and an asset quality review, that helps to ensure banks have enough capital to withstand losses)
  • Stress tests for macroprudential purposes (focusing on financial stability and system-wide effects rather than individual banks)

In addition to these, specific stress tests can also be conducted on individual banks or groups of banks if necessary.

Annual stress tests

EU law requires the ECB to carry out stress tests on supervised banks at least once per year. The results of annual stress tests provide important input to the SREP process for the test year.

Capital Requirements Directive (Article 100)

EU-wide EBA stress tests and SREP stress tests

Every two years the EBA carries out EU-wide stress tests in cooperation with the ECB, the European Systemic Risk Board (ESRB) and the national supervisory authorities. The sample included in the test covers the largest significant banks supervised directly by the ECB. The exercise uses the EBA’s methodology and templates, and the scenarios and key assumptions are developed jointly between the EBA, the ESRB, the ECB and the European Commission. Both aggregate and individual results are published by the EBA.

In years when the EBA conducts its EU-wide stress test, the ECB conducts its own stress test for those banks under its direct supervision that are not part of the EU-wide EBA stress test. This test is part of the annual SREP process. The test uses EBA methodology, with necessary adjustments for smaller banks to allow for a proportionate treatment. The results are then published by the ECB.

As part of the 2021 EU-wide stress test coordinated by the EBA, which replaced the 2020 exercise postponed by one year because of the coronavirus pandemic, the ECB examined 38 significant euro area banks. These banks represented around 70% of total euro area banking assets. The EBA published the results for the individual banks at the end of July 2021. In parallel, the ECB conducted its own stress test for 51 banks it supervises directly but that were not included in the EBA-led stress test sample. Furthermore, this was the first time the ECB published more individual data on ECB-supervised supervised banks not part of the EBA sample.

Thematic stress tests

In years when there is no EU-wide EBA stress test the ECB tests significant institutions under its direct supervision against a specific kind of shock. These tests are run in cooperation with national supervisory authorities, and the ECB publishes the results on an aggregate basis.

2022 climate risk stress test

The 2022 climate risk stress test was an unprecedented learning exercise aimed at evaluating how well banks are set up to tackle climate-related risks in different scenarios that assessed physical risks, such as heatwaves, droughts and floods, as well as short and long-term risks stemming from the transition to a greener economy.

Results showed that, despite some progress, banks still fall short of adequately accounting for climate-related risks, especially within their stress testing frameworks and credit risk models. Overall, to prepare for the green transition banks need to step up their customer engagement to obtain better data and rely less on proxies.

The results will feed into the Supervisory Review and Evaluation Process from a qualitative point of view. All participating banks received individual results and are expected to take action accordingly. This stress test is part of our wider climate roadmap and commitment to prepare European banks for the green transition.

Sensitivity analysis of liquidity risk 2019 - completed

In 2019 ECB Banking Supervision tested banks’ resilience to idiosyncratic liquidity shocks, which were calibrated based on recent crisis episodes.

The results of the exercise were broadly positive: banks reported rather long survival periods with available cash and collateral, which would leave them significant time to deploy their contingency funding plans.

However, a number of issues deserve further attention: short survival periods in foreign currencies; potential ring-fencing risks for some banks; strategies to optimise liquidity coverage ratios (LCR); room for improvement in collateral management practices and a general underestimation of the adverse impact of a rating downgrade. The exercise also uncovered some data quality issues in regulatory reporting. These findings will help to improve the quality of supervisory reporting on liquidity going forward.

The results informed the assessment of banks’ liquidity adequacy and risk governance, but they did not directly affect supervisory capital requirements.

Sensitivity analysis of interest rate risk (IRRBB) 2017 - completed

Stress tests as part of comprehensive assessments

Stress tests are one of the two pillars of the comprehensive assessment, which is a financial health check that helps to ensure banks have enough capital to withstand possible financial shocks. Comprehensive assessments are carried out either

  1. when a bank is classified as significant and will from then on be supervised directly by the ECB
  2. when close cooperation is established between a non-euro area EU Member State and the ECB
  3. or
  4. on a case-by-case basis, when such an assessment is prompted by exceptional circumstances

These stress tests are based on the EBA stress test methodology, but they can be adapted to take into account institutions’ individual circumstances.

EBA stress test methodology

Stress tests for macroprudential purposes

The ECB also conducts stress tests for macroprudential and financial stability purposes. They tend to focus on system-wide effects rather than on individual banks and are run in a top-down manner (without the involvement of the banks). The results are regularly published in Financial Stability Reviews and Macroprudential Bulletins.

This page will be updated on an ongoing basis to reflect the latest developments relating to the stress test exercises conducted by the ECB.

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