The European Banking Authority (EBA) has completed the 2023 EU-wide stress test of 70 banks from 16 EU and EEA countries.
The EBA said that under the stress test, “European banks remained resilient under an adverse scenario which combined a severe EU and global recession, increased interest rates and higher credit spreads”.
According to the Association for Financial Markets in Europe, “this year’s stress test showed that the steps that both banks and supervisors had taken to strengthen the resilience of the EU banking sector had paid off".
AFME added that it is “willing to collaborate with the EBA to develop the roadmap to 2025 stress tests”.
However, the association also said it was “particularly concerned about the severe treatment of capital markets activities in the EBA stress test methodology and scenarios vis-à-vis more traditional commercial and retail banking products”.
It added: “This creates a level playing field issue for banks that serve clients and finance the economy through these activities. AFME looks forward to discussing ways to address this level playing field issue with the EBA.”
The exercise was carried out by the EBA in cooperation with the European Central Bank, the European Systemic Risk Board and the European Commission.
The aim of the EU-wide stress test is to assess the resilience of EU banks to a common set of adverse economic developments, in order to identify potential risks, inform supervisory decisions and increase market discipline. The exercise is not designed as a pass-fail test but as a supervisory tool.
Caroline Liesegang, head of prudential regulation at AFME, comments: “AFME welcomes the results of this year’s EBA stress tests. The results reflect a better starting point for banks, with higher levels of capital, improved asset quality and profitability driving the change compared to the previous stress test.
“Notwithstanding the overall positive outcome, we urge the EBA to take a fresh look at the stress test methodology and remove or at least recalibrate some of the existing constraints that often override banks’ bottom-up projections.
“The EBA stress test follows a constrained bottom-up approach, involving banks in identifying risks using their own models to encourage better risk management practices. A successful stress test should find a balance between supervisory standardisation and accommodating individual bank characteristics.”
