Results of the 2014 EU-wide stress test

26 October 2014

The European Banking Authority (EBA) published today the results of the 2014 EU-wide stress test of 123 banks. The aim of the stress test is to assess the resilience of EU banks to adverse economic developments, so as to understand remaining vulnerabilities, complete the repair of the EU banking sector and increase confidence. On average, EU banks' common equity ratio (CET1) drops by 260 basis points, from 11.1% at the start of the exercise, after the asset quality reviews' (AQRs) adjustment, to 8.5% after the stress. By disclosing these results, the EBA is providing unparalleled transparency into EU banks' balance sheets, with up to 12,000 data points per bank, an essential step towards enhancing market discipline in the EU.

In preparation for the stress test, EU banks have made significant progress in strengthening their capital positions, as the starting CET1 ratio levels show. Between January and September 2014 alone, they have raised further EUR 53.6 bn of equity (EUR 39.2 bn net of repayments and buybacks) and 39.1 bn of contingent convertible instruments (both additional Tier 1 and Tier 2).

The 2014 EU-wide stress test results show an overall impact of the adverse macroeconomic scenario on the CET1 ratio of 260 basis points over 3 years, with CET1 decreasing from 11.1% in 2013 to 8.5% in 2016. The joint effect of the AQR and the stress test is 300 basis points. Over the three-year horizon of the exercise, 24 banks would fall below the 5.5% CET1 threshold and the overall shortfall would total EUR 24.6 bn.

The main drivers for this impact are credit risk losses, which account for 440 basis points of CET1 ratio decrease and an increase in total risk exposure (110 basis points).

The impact of the stress test on banks' capital positions is assessed taking into account the national transitional arrangements provided for in the Capital Requirements Directive (CRDIV) and Capital Requirements Regulation (CRR). However, to ensure consistency and comparability, the EBA is, for the first time, disclosing the impact of the stress test also on the future fully implemented CRDIV/CRR capital ratios. This additional disclosure will help market participants better understand the pathway towards the full implementation of the CRDIV/CRR. For the banks in the sample, the fully loaded CET1 ratio in 2016 under the adverse scenario would be 7.6%.

Acting as a central data hub for the entire EU, the EBA is publishing both aggregate results of the EU-wide exercise and granular data for each bank, including detailed information at both the starting and end point of the exercise, under the baseline and the adverse scenarios.

Competent authorities, including the ECB for banks in the euro area, have been responsible for assessing the quality of the data submitted by banks and the reliability of the results; they are also responsible for identifying appropriate supervisory actions that banks will be asked to take to address the vulnerabilities identified in the exercise, as deemed appropriate.

Note to the editors

The 2014 EU-wide stress test is coordinated by the EBA and is carried out in cooperation with the European Central Bank (ECB), the European Systemic Risk Board (ESRB), the European Commission, and the competent authorities from all relevant national jurisdictions. In this process, the EBA has developed a common methodology and plays an important role in ensuring a comprehensive, consistent, and comparable disclosure of the results. The ESRB and the European Commission have developed, respectively, the adverse and the baseline scenarios. Competent authorities, including the ECB for the euro area, are responsible for the quality assurance of banks' data as well as for supervisory actions banks will have to take in response to the outcome of the exercise.