Finance Denmark

General comments
We find the draft guidelines on institution’s stress testing very comprehensive making it demanding for the institutions to comply with the guidelines. We fear that the EBA cost-benefit analysis showing a low positive impact is too positive since a negative impact could be foreseen. We do expect the institutions to have implementation costs since the guidelines are on several areas (eg liquidity risk) substantially more demanding than the current stress testing set up. Giving the need for adjustment in the stress test set up the deadline is too short. It should be extended to second quarter of 2019 allowing the institutions appropriate time to adapt the new guidelines.

We appreciate the focus on proportionality and find it important it is included in all aspects of the guidelines. It is important that less complex institutions should be stressed by adequately simplified version of a stress test and the stress test methodologies reflects differences in size, complexity and business models.

If a less complex institution has an existing stress test setup that clearly covers the major risks in the institute, there should be scope for continuing this without further amendments.

We also see a risk of double counting of risks. It is necessary to have clarification on how and to what extend e.g. conduct risk, second round and feedback ef-fects and solvency-liquidity loops should be accounted for without double counting of risks. We are concerned that the various risk areas and different measures are not fully separable in practice so increased attention on e.g. con-duct and concentration risk will give double counting of risks already accommo-dated.

Finally, more transparency regarding the stress testing methods etc. could be of benefit for supervisors and institutions making limitations of comparability of results of stress tests more clear.

Detailed comments
Liquidity risk
The requirements for the institutions’ analysis of risk factors are very extensive. Eg some of the factors to take into account in point 152 are unnecessary. In 152 a) it should be sufficient to include “material” interest rates shocks. In 152 b) only “sig-nificant” currencies should be included.
Finance Denmark