The European Banking Authority (EBA) began the 2020 banking stress test exercise on Friday 31 January, the results of which will be published on 31 July.
For the first time, the scenario chosen is based on an EU-wide economic recession linked to an environment of low or even negative interest rates over an extended period (‘lower for longer narrative’), all in an environment characterised by strong international trade tensions.
In the worst-case scenario, the Union's GDP would fall by 4.3% by 2022, the unemployment rate would rise by 3.5%, share prices would fall by 25% in the developed economies and by 40% in the emerging economies, while property prices would fall by 16% in the residential sector and by 20% in the commercial property sector.
The sample consists of 51 European banking groups, 35 of which are directly supervised by the ECB as the single banking supervisor within the banking union. Almost 70% of total banking assets under management in the EU (plus Norway) will be covered. It should be noted that UK banks are also included, as the tests will take place during the post-Brexit transition period that runs until the end of 2020.
As in the previous two years, there is no quantitative threshold (i.e. an optimal level of equity capital) for determining whether a bank has passed or failed the stress test. However, the publication of the stress test results may be accompanied by a requirement for some banks to further consolidate their capital.
More information can be found at: http://bit.ly/2tcBSCS (Original version in French by Mathieu Bion)