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EBA stress test to improve transparency

The European Banking Authority (EBA) will look at all risk areas affecting banks in its 2018 stress test and increase transparency so that market participants can assess the resilience of EU banks, it has said.09 Jun 2017

The EBA has published its draft methodology for the test, which will cover 70% of the EU banking sector and will assess banks' ability to meet supervisory capital ratios during an "adverse economic shock".  

Stress tests are designed to measure banks' financial resistance to adverse conditions. The methodology covers all relevant risk areas and will incorporate IFRS 9 accounting standards for the first time, the EBA said.

The 2018 test will be carried out on a sample of 49 EU banks, 35 of which falling under the jurisdiction of the Single Supervisory Mechanism (SSM). No single capital threshold is defined for this exercise, it said.

Spanish bank Banco Popular was removed from the list of banks after its purchase this week by Banco Santander.

The final methodology will be published as the exercise is launched at the beginning of 2018 and the results will be published in mid 2018. The results will then be used to develop the 2018 Supervisory Review and Evaluation Process, EBA said.

The results of the last stress test in 2016  showed that the EU banking sector had improved its capital base "significantly" in recent years, the EBA said at the time.

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

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