On 30 July 2021, the European Banking Authority (EBA) published the results of the 2021 EU-wide stress test, which involved 50 banks from 15 EU and EEA countries, covering 70% of the EU banking sector assets.

The stress test is characterised by an adverse scenario that assumes a prolonged COVID-19 scenario in a “lower for longer” interest rate environment. With a cumulative drop in GDP over the three-year horizon by 3.6% in the EU, and a negative cumulative drop in the GDP of every Member State, the 2021 adverse scenario was very severe, also having in mind the weaker macroeconomic starting point in 2020 as a result of the COVID-19 pandemic.

Among other things the results of the stress test show that:

  • Under a very severe scenario, the EU banking sector would stay above a Common Equity Tier 1 (CET1) ratio of 10%, with a capital depletion of EUR 265bn against a starting CET1 ratio of 15%.
  • Credit losses, like in previous such exercises, would explain most of the capital depletion. The “lower-for-longer” scenario narrative would also result in a significant decrease in the contribution of profits from continuing operations, especially from net interest income.

The EBA has also published the results of the individual banks participating in the stress test.

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