European Banking Authority Publishes Draft Methodology for 2020 EU-Wide Stress Tests

The European Banking Authority has published its draft methodology, templates and template guidance for the 2020 EU-wide stress tests that will be carried out to assess EU banks' resilience to an adverse economic shock. The final methodology will be published by the end of 2019. The stress test will be launched in January 2020 and the results will be published by the end of July 2020.
 
The EBA's methodology sets out how banks should calculate the stress impact of certain scenarios designed to cover the following risks: (i) credit risk, including securitizations; (ii) market risk, counterparty credit risk and credit valuation adjustment; and (iii) operational risk, including conduct risk. The methodology to be employed in the stress tests will be determined according to the type of risk being tested. The tests will be carried out on a sample of banks, including roughly 70% of Eurozone banks, as well as banks in non-Eurozone countries and Norway. The EBA has also published Template Guidance that provides banks with technical advice on how to populate the reporting templates used in the stress test exercises.
 
The draft documentation provides a starting point for discussions with banks, whose input will be considered by the EBA when finalizing the documents. U.K. banks have not been included in the sample of banks on the assumption that the U.K. would leave the EU on October 31, 2019.
 
View the EBA's Methodological Note.
 
View the EBA's Template Guidance on the 2020 EU-Wide Stress Tests.
 
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