EBA publishes findings of ad-hoc analysis on banks bonds’ holdings

The European Banking Authority (EBA) today published findings of an ad-hoc analysis of unrealised losses on debt securities held at amortised cost in EU banks. This targeted analysis is part of the ongoing regular risk monitoring of the EU banking sector conducted by the EBA in collaboration with Competent Authorities.

The ad-hoc analysis is a targeted risk assessment conducted by the EBA in collaboration with competent authorities, which aims at understanding the potential evolution of unrealised losses on EU banks’ debt securities held at amortised cost.

This assessment is part of the ongoing efforts to evaluate the downside risks faced by EU banks. It is performed on the same sample of banks included in the 2023 EU-wide stress test. The analysis relies on information on the size of banks’ bonds portfolios, their carrying amount (i.e. book value) and fair value, and the value of the derivatives that banks hold to directly hedge these positions.

As of February 2023, the total amount of banks’ debt securities held at amortised cost was 1.3 trillion EUR. The related total unrealised losses, net of hedge adjustments, amounted to 75bn EUR, showing an increase since the end of 2021 as interest rates have been increasing. As of February 2023, gross unrealised losses were mitigated by hedges amounting to 38bn EUR.

The hypothetical gains and losses calculated in this analysis should be assessed taking into account the overall interest risk management of the banks. In this regard, the EBA Guidelines on interest rate risks for banking book (IRRBB) and credit spread risk arising from non-trading book activities (CSRBB), which include the economic value of equity (EVE), cover the evaluation of the overall interest rate risk management.

Together with the aggregated analysis, the EBA also published individual bank information on the carrying amount and fair value of debt securities held at amortised cost, as of end December 2022 and February 2023.