EU banks to face shock tests
04 February 2020 Frankfurt
Image: Shutterstock
The European Central Bank (ECB) is reviewing the ability of 35 significant euro area banks to absorb
shocks and meet capital requirements under adverse macroeconomic conditions.
The tests come as part of the 2020 EU-wide stress test coordinated by the European Banking Authority
(EBA) and will cover roughly 70 percent of total euro area banking assets, that it supervises.
According to the ECB, the results of the stress tests, due to be published on 31 July, will provide
stakeholders and the public with information about the resilience of banks.
The ECB will conduct its own stress test in parallel for those significant banks not covered by the EU-wide EBA stress test. The central bank says its test is consistent with the EBA methodology, but will also consider the smaller-size and lower complexity of these institutions.
The stress test results will be used to assess each significant bank’s pillar-two capital needs in the
context of the supervisory review and evaluation process.
The results from the 2019 tests showed that 90 percent of banks reported a survival period longer than two months, even under "extreme shock".
According to the ECB’s report, four banks from different jurisdictions and business models reported a
survival period shorter than the exercise time-horizon of six months in the baseline (which includes a
freeze in wholesale markets).
Meanwhile, only 11 banks reported a survival period shorter than two-months under extreme shock.
Overall, the ECB concluded that liquidity reserves were found to be “adequate” to counterbalance the
simulated net outflows for the vast majority of banks.
shocks and meet capital requirements under adverse macroeconomic conditions.
The tests come as part of the 2020 EU-wide stress test coordinated by the European Banking Authority
(EBA) and will cover roughly 70 percent of total euro area banking assets, that it supervises.
According to the ECB, the results of the stress tests, due to be published on 31 July, will provide
stakeholders and the public with information about the resilience of banks.
The ECB will conduct its own stress test in parallel for those significant banks not covered by the EU-wide EBA stress test. The central bank says its test is consistent with the EBA methodology, but will also consider the smaller-size and lower complexity of these institutions.
The stress test results will be used to assess each significant bank’s pillar-two capital needs in the
context of the supervisory review and evaluation process.
The results from the 2019 tests showed that 90 percent of banks reported a survival period longer than two months, even under "extreme shock".
According to the ECB’s report, four banks from different jurisdictions and business models reported a
survival period shorter than the exercise time-horizon of six months in the baseline (which includes a
freeze in wholesale markets).
Meanwhile, only 11 banks reported a survival period shorter than two-months under extreme shock.
Overall, the ECB concluded that liquidity reserves were found to be “adequate” to counterbalance the
simulated net outflows for the vast majority of banks.
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