After the postponement of the 2020 edition due to the Covid-19 pandemic, on Friday 29 January the European Banking Authority (EBA) initiated the 2021 stress test of 50 major European banks covering nearly 70% of banking assets in the EU plus Norway. Results are expected at the end of July.
The scenarios envisaged take into account current concerns about a possible deterioration of the economic situation that could result from a prolongation of the pandemic, which would be characterised in particular by a strong loss of confidence of economic operators combined with an environment where interest rates would be ‘lower for longer’.
In the worst-case scenario, the EBA envisages a cumulative fall in EU GDP of 3.6% by 2023, an increase in unemployment of 4.7%, a fall in house prices of 16.1% for residential housing and 31.2% for commercial property. Equity prices in global financial markets would fall by 50% in advanced economies and by 65% in emerging economies in the first year.
The objective of the stress tests is to analyse the ability of banks to withstand these adverse scenarios thanks to the regulatory capital buffers accumulated after the 2008 financial crisis. The data collected will allow policy makers to reflect on possible exit strategies from the emergency aid measures (state aid) agreed in 2020 or, if necessary, additional measures, if the situation so requires.
In the panel of banking groups analysed two Austrian, two Belgian, seven German, three Danish, four Spanish, two Finnish, seven French, one Hungarian, two Irish, five Italian, five Dutch, one Norwegian, two Polish, two Portuguese and five Swedish banks.
See the EBA methodological note: https://bit.ly/36wZJO3
See the note from the European Systemic Risk Board (ESRB): https://bit.ly/3raK2nQ (Original version in French by Mathieu Bion)