The European Banking Authority (EBA) unveiled, on Tuesday 31 January, the methodology it will apply in the context of the stress tests designed to screen the soundness of 70 large banks in the European Union plus Norway (20 more financial institutions than in 2021), thus covering 75% of total banking assets.
The European authority has devised an adverse three-year socio-economic scenario for the EU that is harsher than in previous editions. According to this scenario, the persistence of Russian aggression in Ukraine and its economic repercussions (soaring energy and commodity prices, rising interest rates, sharp correction in the valuation of assets on the financial markets) would keep inflation at a very high level: 9.7% in 2023, 5.3% in 2024 and 3.8% in 2025. Over three years, the recession is expected to be acute in the EU, with a cumulative GDP contraction of 6.0%, a deviation of 9.8% from the baseline scenario.
On the basis of these parameters, the EBA will analyse the evolution of several types of risks that have a strong impact on the soundness of banks, such as credit risks, including those related to securitisation, as well as market and operational risks.
The final results of the EBA stress tests are expected at the end of July.
More info at: https://aeur.eu/f/55l (Original version in French by Mathieu Bion)