The European Banking Authority (EBA) is conducting an EU-wide banking stress test in the first six months of 2011, cooperating closely with the European Systemic Risk Board (ESRB), the European Commission (EC), the European Central Bank (ECB) and national supervisory authorities. This stress test of the banking sector forms part of a range of resistance tests that are currently being carried out for the European financial sector by the European System of Financial Supervisors (ESFS) The results of the tests for individual banks will be published in the middle of June.
The Financial Market Authority (FMA) and Oesterreichische Nationalbank (OeNB) will look at the same sample of banks in Austria as in the previous year. From today (18 March 2011) the scenarios and methodologies applied by the stress tests are published on the EBA website (http://www.eba.europa.eu/News–Communications/Year/2011/The-EBA-publishes-details-of-its-stress-test-scena.aspx), which also contains information on the milestones set for the rest of the schedule.
Stress testing is a tool that is used to assess the resistance of credit institutions to hypothetical yet plausible negative economic scenarios. The banks’ resistance is measured according to their capacity to absorb the simulated shocks from credit risk, market risk and other economic risks. The tests investigate the potential effects of the expected economic development on the credit institutions (baseline scenario). Moreover, the banks are subjected to a stress scenario that assumes a large-scale worsening in economic conditions.
In the EU-wide stress scenario created by the ECB, there is an assumption that 2011 will see a heightening of the European government debt crisis, which will have a negative effect on the real economy due to increased uncertainty and worse labour market conditions and lower lending. In addition, a global collapse in demand, starting in the USA, is also accompanied by devaluation of the US dollar.
The stress scenario created for this year’s tests is much more stringent than that produced for the EU-wide stress test in 2010, both in terms of the gravity of the collapse and in terms of the probability of occurrence. The overall effect of the stress scenario for the euro area is a drop in GDP of four percentage points over two years (2011-2012). The loss of growth is therefore significantly more marked than in the 2010 EU-wide stress test, in which a fall in growth of almost three percentage points was assumed.
In this year’s stress test, the core tier 1 capital requirement represents a more conservative definition of capital than the tier 1 capital threshold which was applied in the 2010 EU-wide stress test. The EBA is currently working on a uniform definition of core tier 1 capital to be applied consistently across all EU countries.
Journalists may address further enquiries to:
Alexandra Schneider (FMA) Communications Division (OeNB)
Phone: +43 (0)1 24959 5104 Phone: +43 (0)1 404 20 6666