The European Banking Authority (EBA) has published the methodology, draft templates, and key milestones for the upcoming EU-wide stress test. Set to formally begin in January 2025, the stress test aims to “assess the resilience of EU banks to a common set of adverse economic developments, identifying potential risks, informing supervisory decisions, and increasing market discipline”.
The primary focus of the test would be to evaluate the impact of adverse shocks on banks’ solvency. Based on the assumption that balance sheets remain constant, participating banks will be required to estimate the progression of common risk factors, such as credit, market, counterparty, and operational risks in a baseline and an adverse scenario. Additionally, participants are expected to project how these scenarios might affect key income streams.
Also involved in the test exercise are the European Central Bank (ECB), the European Systemic Risk Board (ESRB), and national competent authorities. Results from the test are expected to be published in early August 2025.
