EBA publishes peer review on the implementation of the stress testing guidelines

12 November 2013

The European Banking Authority (EBA) published today the peer review on the implementation of the EBA guidelines on stress testing . The aim of the peer review was to assess and compare the effectiveness of the supervisory activities related to the review of credit institutions' own stress testing frameworks across the EU, as well as the implementation of related provisions by competent authorities. The report shows that National Competent Authorities (NCAs) largely comply with the three assessed guidelines (18, 19 and 20).

Key features of the peer review work and main findings

In line with its mandate to assess the degree of convergence to the EBA guidelines, the EBA selected the guidelines on stress testing to perform a peer review analysis given the special emphasis placed on this topic by NCAs over the last couple of years.

The peer review work focused on methods and examples of best practice, and covered (i) stress testing governance structures and their use, (ii) possible methodologies including the appropriate severity of scenarios and potential mitigating measures during stressed conditions, and (iii) the overall impact of risk on institutions.

The following conclusions emerged from the peer review and in particular from on-site visits performed by the EBA:

  • All NCAs' resource models have benefits. However, irrespective of the model, dedicated stress testing technical experts should be involved.
  • Stress test instructions at national level are currently spread over various supervisory manuals, hence the need for centralised documents.
  • NCAs often focus on the (few) largest banks in their respective jurisdictions, and devote far less attention to other banks.
  • The incorporation of stress testing into the Supervisory Review and Evaluation Process (SREP) and the joint decision process is handled differently across NCAs.
  • Many of the assessed NCAs carry out substantial work on top-down stress testing, from both a micro- and macro-prudential perspective.
  • Very few NCAs require reverse stress testing, and when so it is often as part of a recovery and resolution plan.

Best practices

  • In terms of best practices, the implementation of the EBA Guidelines has resulted in more effective supervisory activities, especially in terms of standard procedures to assess stress testing.
  • Another example of good practice identified is the comparison between banks with similar characteristics and historical information, which could constitute a central input to the SREP/JRAD (Joint Risk Assessment and Decision) for cross border banking groups.
  • Finally, the results of the report encourage discussions about the stress test in supervisory colleges. All relevant information should be used in the joint decision process, together with documented processes, principles and methodologies.

Legal basis

Peer reviews are conducted in accordance with the provisions of Article 30 of Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 (‘the EBA Regulation') and the EBA decision establishing the Review Panel.