Stress Test

EBA Clarifies Use of 2016 EU-Wide Stress Test Results in SREP Process

On July 1, 2016, the EBA published additional information on how the results of the EU-wide stress test will inform the Supervisory Review and Evaluation Process (“SREP”).

The focus of the update is to explain how additional capital guidance can be used to cover potential shortfalls in own funds based on the outcomes of supervisory stress tests. Although capital guidance does not constitute any form of minimum capital requirement, institutions are expected to incorporate it in their risk management frameworks. Competent authorities should also monitor its fulfillment.

The 2016 EU-wide stress test does not contain a pass fail threshold and instead is designed to be used as a crucial piece of information for SREP in 2016. The results will allow competent authorities to assess banks’ abilities to meet applicable minimum and additional own funds requirements under stressed scenarios based on a common methodology and assumptions. If competent authorities identify capital shortfalls leading to potential breaches of applicable own funds requirements revealed by the stress tests, they can employ the capital guidance to address their concerns.

The results of the EU-wide stress test, which was launched by the EBA in February 2016, are expected to be published in the early part of the third quarter of 2016.

EBA Releases Results of 2014 EU-Wide Stress Test

On October 26, the European Banking Authority (EBA) released the results of its 2014 EU-wide stress test covering more than 70% of total EU banking assets.  The purpose of the test is to address remaining vulnerabilities in the EU banking sector.

The impact of the stress test is assessed in terms of the transitional CRR/CRD IV Common Equity Tier 1 ratio for which defines 8.5% as the ratio for an adverse scenario as of end 2013.  The EBA reported that 24 participating banks fell below the defined thresholds leading to an aggregate maximum capital shortfall of €24.6 billion.

The EBA states that the supervisory actions will be communicated by each competent authority shortly after the publication of the stress test results.  Report.

FDIC Extension of Comment Period on Stress Test Rule

On March 21, the FDIC extended the comment period on its proposed rule to require state, non-member banks and savings associations with more than $10 billion in consolidated assets to conduct annual stress tests, pursuant to Section 165 of the Dodd-Frank Act.  Comments must now be submitted by April 30.  FDIC Release.  Proposed Rule Extension.