Out-Law News 1 min. read

Next EBA stress test to be held in 2018


The European Banking Authority (EBA) has confirmed that it will continue to run two-yearly stress tests on banks, with the next test due in 2018.

Stress tests are designed to measure banks' financial resistance to adverse conditions. The 2018 test will also include an assessment of the impact of the new International Financial Reporting Standard (IFRS 9), the EBA said.

IFRS 9 is due to come into force on 1 January 2018. A Deloitte survey in August found that nearly half of banks said they would not be able to meet the deadline.

"The decision to run the next EU-wide stress test in 2018 was driven by an acknowledgement of the ongoing progress that EU-banks are making in strengthening their capital positions. Competent authorities as well as market participants will, in the meantime, use the significant quantitative and qualitative information generated by the 2016 EU-wide exercise," the EBA said.

"Risks and vulnerabilities in the EU-banking sector will continue to be monitored by competent authorities and the EBA as part of their regular assessment of banks," it said.

The EBA will perform its regular annual transparency exercise in 2017, it said.

Banking reform expert Tony Anderson of Pinsent Masons, the law firm behind Out-Law.com said: "While capital bases have been improving for European banks, they will continue to find themselves under intense regulatory scrutiny given the current backdrop of economic and political uncertainty in the region.”

The results of the 2016 stress test were published in August and showed that the EU banking sector has improved its capital base "significantly" in recent years, the EBA said.

51 banks from 15 EU and EEA countries were included, covering around 70% of banking assets in each jurisdiction and across the EU.

The common equity tier 1 (CET1) capital ratio in the sample was13.2%, up from 8.9% in 2011, the EBA said.

Unlike in previous years there was no pass or fail to the test. Instead, each competent authority will discuss the results with individual banks.

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