European Banking Authority Publishes the EU-Wide Stress Test Aggregate Report

Date Published 7/18/2011
Author Marja Hoek-Smit

The European Banking Authority (EBA) published the the EU-Wide Stress Test Aggregate Report.

The EU wide stress test 2011 was carried out on 91 banks which represent 65% of total assets of the banking sector and is one of a number of important supervisory tools.  The test assesses the resilience of European banks to a hypothetical adverse scenario and uses a common, conservative stress testing benchmark for European banks.  The test was consistently across participating banks as part of a coordinated EU wide effort to improve transparency, identify vulnerabilities, inform policymakers and ensure appropriate measures are taken to address possible deficiencies.

The stress test has been carried out on a static balance sheet as of December 2010 over a two year time horizon. Key features of the stress test for 2011 include:
  • A  new consistent capital benchmark of 5 per cent core tier 1 (CT1)
  • A common baseline and adverse scenario developed by the European Commission and ECB respectively, combined with common assumptions and definitions to ensure consistency
  • A quality assurance and peer review process carried out by EBA staff assisted by a team of experts from national supervisory authorities, the European Central Bank and the European Systemic Risk Board. During this process, additional guidance was sent out to banks early in June to address shortcomings and over-optimism of some banks’ preliminary estimates.
The results include clear disclosure of credit and sovereign exposures, and are published by the EBA, national authorities and banks using the EBA disclosure templates.

The results and supporting disclosures include:
  1. The result of the stress test under the static balance sheet as of December 2010 and a detailed description of the capital make up at that time.
  2. The impact of existing mitigating measures which will strengthen the capital base at 2012 as a result of committed equity raisings, and mandatory restructuring plans announced and fully committed by 30 April 2011.
  3. Management decisions and actions where necessary to strengthen balance sheets and additional mitigating measures which do not fall into the above category but which will serve to improve the capital position by end 2012.
Read the full report>>

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