On 22 January 2020, the European Banking Authority (EBA) published a discussion paper on future changes to the EU-wide stress test.
The proposed new framework comprises of two components owned by supervisors and banks respectively: the supervisory leg and the bank leg. The supervisory leg serves as the starting point for supervisory decisions and would be directly linked to the setting of Pillar 2 guidance. The bank leg allows banks to communicate their own assessment of risks in an adverse scenario. To ensure a certain level of comparability, both legs would use the same common scenarios and starting points for projecting the stress test results.
As for the scenario design, the discussion paper considers the costs and benefits of multiple macroeconomic scenarios. The EBA requests feedback on the feasibility of introducing exploratory scenarios that would focus on potential risks with very short realisations (e.g. liquidity risks) or coming from longer-term changes in the business environment stemming from environmental, social and political developments or in technology.
The deadline for responses to the discussion paper is 30 April 2020. The EBA states that it will conduct the 2020 EU-wide stress test in accordance with the current framework and will publish the results in July 2020.