The European Banking Authority (EBA) has published a report setting out the results of its 2016 EU-wide stress test of 51 banks from 15 EU and EEA countries – 37 from countries subject to the single supervisory mechanism and 14 from Denmark, Hungary, Norway, Poland, Sweden and the UK. The participating banks are listed in the annex to the report.
The objective of the stress test is to provide supervisors, banks and other market participants with a common analytical framework to consistently compare and assess the resilience of large EU banks to adverse economic developments.
The 2016 EU‐wide stress test does not contain a pass fail threshold and is designed to be used as a crucial input into the 2016 supervisory review and evaluation process (SREP), with the primary aim of setting Pillar 2 capital guidance although no supervisory actions are precluded.
The outcome of the stress test demonstrates resilience in the EU banking sector due to significant capital raising. The results for individual banks vary significantly and will inform the supervisory discussions in the SREP to understand each banks’ resilience to shocks, after taking into account their specific circumstances and credible management actions.
A table on page 7 of the report provides a summary of the key results.
The Bank of England (BoE) has also published a statement on the results of the EBA’s 2016 EU-wide banking stress test. Four UK banks participated in the test. The BoE advises that the results for these banks are consistent with those of previous BoE stress tests and considers that they provide evidence that major UK banks have the necessary resilience to maintain lending to the real economy, even in a macro-economic stress scenario. The BoE notes the important methodological differences between its test and the EBA’s test, which are as follows:
- the EBA test assumes that banks’ balance sheets remain static through the stress. The BoE’s test is dynamic, allowing banks to dispose of assets as long as they continue to meet the projected demand for credit from the real economy; and
- the EBA test places restrictions on banks’ flexibility to assume they take actions to cut costs and boost income in the stress scenario. The BoE test does not impose the same constraints. For example, it allows banks to take actions to reduce operating costs where these are plausible.
The scenario and methodology for the BoE’s 2016 stress test were published in March 2016 and were blogged here.
The results of the EBA stress test cannot be used to infer the results of the BoE’s stress test, which will be decided and published in Q4 2016. The PRA and the Financial Policy Committee will consider the results of the EBA’s stress test alongside the results of the BoE’s stress test, as part of their on-going evaluation of the capital adequacy of both individual institutions and the overall resilience of the UK banking system.
View EBA publishes results of the 2016 EU-wide banking stress test, 29 July 2016
View BoE statement on results of EBA’s 2016 EU-wide banking stress test, 29 July 2016