Brussels, 24/02/2016 (Agence Europe) - On Wednesday 24 February, the European Banking Authority (EBA) released the methodology and macroeconomic scenarios to be applied in the 2016 bank stress tests (see EUROPE 11425).
On the basis of the financial statements of 51 banks (70% of bank assets covered), including some 40 eurozone institutions at the end of 2015, the stress tests aim to analyse the ability of the banks to ride out credit, market, sovereign, operational, financing and securitisation risks.
For the first time, no single capital thresholds have been defined, as the banks will be evaluated on the basis of the regulatory own-funds ratios identified on the so-called 'static' balance sheets. According to the European authority, the aim is to use the results of the stress tests expected for the third quarter of 2016 as a supervisory tool and allow the supervisors to take prudential measures tailored to the situation of each bank.
The stress tests are based on the ability of banks to resist a crisis scenario in comparison to a normal situation. This crisis scenario, which was devised by the European Systemic Risk Board, reflects an abrupt reversal of compressed global risk praemia, amplified by low secondary market liquidity, weak profitability prospects for banks and insurers, growing concerns for the sustainability of public and private debt and turbulence in the shadow banking sector.
Compared to the baseline scenario, the crisis scenario implies a 3.1% drop in GDP for 2016, 6.3% in 2017 and 7.1% in 2018. It also comprises a drop in residential and commercial real estate prices and a weakening of the currencies of central and eastern Europe. In comparison to the baseline scenario, GDP growth would be between 2.5% and 4.6% lower than anticipated in 2018 in the economies of the advanced countries, including the United States and Japan, and between 4.5% to 9.7% lower in the emerging countries, particularly Brazil, Russia and Turkey. (Original version in French by Mathieu Bion)