Guidelines on stress testing and supervisory stress testing

Status: Under development

These draft Guidelines on stress testing and supervisory stress testing provide detailed guidance on the way institutions should design and conduct a stress testing programme across the EU as well as promote convergence in the use of stress test in the context of the supervisory review and evaluation process (SREP). They build on the previous CEBS Guidelines on Stress Testing (GL32), which were published in August 2010.

  • Consultation Papers
Consultation on Guidelines on institution's stress testing (EBA/CP/2017/17)

Summary
31/10/2017

The European Banking Authority (EBA) in accordance with its Pillar 2 Roadmap, published in April 2017, launched today a public consultation to review three guidelines aimed at further enhancing institutions’ risk management and supervisory convergence in the supervisory review and examination process (SREP). The revisions focus on stress testing, particularly its use in setting Pillar 2 capital guidance (P2G), as well as interest rate risk in the banking book (IRRBB). The consultations on all three guidelines run until 31 January 2018.
 
In particular, the publication includes:
  • an update of the EBA guidelines on common procedures and methodology for Supervisory Review and Evaluation Process (SREP Guidelines);
  • an update of the EBA guidelines on the management of interest rate risk arising from non-trading activities (IRRBB Guidelines); and
  • an update of the EBA guidelines on institutions’ stress testing.
The comprehensive EU SREP framework, which was introduced by the EBA in 2014, is now well established and in use by supervisors across the EU. Following the global regulatory developments, as well as the EBA’s supervisory convergence assessments, specific changes are needed to reinforce the framework as set out in the EBA’s Pillar 2 Roadmap
 
The overall SREP framework and the Guidelines remain intact and the consultation is only focused on the elements being updated. In particular, the revisions enhance the requirements for supervisory stress testing and explain how stress testing outcomes will be used in setting P2G. The guidelines have also been updated with assessments of internal governance based on the recently revised EBA Guidelines on internal governance.
 
The revised IRRBB Guidelines reflect developments in the Basel Committee on Banking Supervision (BCBS) and clarify internal governance and supervisory outlier tests requirements during the first phase of the European implementation of the Basel standards. The revisions are, therefore, intended to act as a bridge to the future requirements, which will be incorporated in the CRD V/ CRR2 framework.
 
The revised guidelines on institutions’ stress testing update the EBA’s 2010 guidelines to reflect industry practices and the incorporation of recovery planning. The revised guidelines also feature a common taxonomy on stress testing. 
 
In accordance with the Pillar 2 Roadmap, these three guidelines are being consulted in parallel and are expected to be implemented by 1 January 2019 for the 2019 cycle of SREP and joint decisions on institution-specific prudential requirements.

Consultation process

Responses to the consultations can be sent to the EBA by clicking on the following links:
 
Click here to respond to the consultation on common procedures and methodologies for SREP
Click here to respond to the consultation on the management of IRRBB
Click here to respond to the consultation on institutions’ stress testing
 
All contributions received will be published after the consultation closes, unless requested otherwise. The deadline for the submission of comments is 31 January 2018.
 
A public hearing on all three guidelines will take place at the EBA premises on 16 January 2018 from 10:00 to 13:00 UK time. 

Legal basis 

The EBA guidelines on common procedures and methodology for Supervisory review and Evaluation Process (SREP) have been developed in accordance with Article 107(3) of Directive 2013/36/EU and specify the common procedures and methodologies for the functioning of the supervisory review and evaluation process (SREP) referred to in Articles 97 and 107(1)(a) of Directive 2013/36/EU. In addition, these guidelines aim at providing common methodologies to be used by competent authorities when conducting supervisory stress tests in the context of their SREP as referred to in Article 100(2) of Directive 2013/36/EU. 
 
The EBA guidelines on the management of interest rate risk arising from non-trading activities have been developed in accordance with Article 16 of Regulation (EU) No 1093/2010 and Article 98(5) of Directive 2013/36/EU. These guidelines specify the systems to be implemented by institutions for the identification, evaluation and management  and governance arrangements of IRRBB;  sudden and unexpected changes in the interest rate in accordance with Article 98(5) of Directive 2013/36/EU for the purposes of SREP; and general expectations for the identification and management of credit spread risk in the non-trading book (CSRBB).
 
The EBA guidelines on institutions’ stress testing have been developed in accordance with Article 16 of Regulation (EU) No 1093/2010 and update the existing EBA Guidelines on stress testing form 2010. These guidelines aim at providing common organisational requirements, methodologies and processes for the performance of stress testing by institutions as part of their risk management processes.

Public Hearing

Date: 16/01/2018 | Duration: 10:00 - 13:00 UK time

Deadline for registration is 03/01/2018 16:10 (UK time)

Registration link

Send your comments Deadline: 31/01/2018
Consultation on the Guidelines on stress testing and supervisory stress testing (EBA/CP/2015/28)

Summary
18/12/2015

The European Banking Authority (EBA) launched today a consultation on its draft Guidelines on stress testing. These Guidelines set out expectations for institutions’ stress testing programmes and seek improvements by drawing on lessons from previous stress test exercises. In addition, they aim at promoting convergence of the use of stress testing in the context of the supervisory review and evaluation process (SREP). The consultation runs until 18 March 2016.
 
The proposed Guidelines, addressed to both institutions and competent authorities across the EU, provide guidance that institutions should follow when designing and conducting their stress testing programmes. In addition, they describe the range of supervisory stress tests and support competent authorities in their qualitative assessment of stress testing programmes as well as in the use of stress test quantitative outcomes for the implementation of the supervisory review and evaluation process (SREP). 
 
The Guidelines also provide greater detail on issues that have gained importance, including liquidity risks, conduct risk and litigation costs, FX lending risks, business models, data aggregation, and the use of reverse stress testing. 
 
To assist in fostering a common understanding of the range of stress tests and to help set the appropriate context in view of future EBA stress tests, a stress testing taxonomy is included and a description of different types of supervisory stress test exercises is provided. 
 
These guidelines complement the EBA SREP Guidelines by providing guidance on the use of supervisory stress testing by competent authorities, describing different forms and objectives, the aspects related to the organisation, resources, methodologies, and the use of the outcomes when assessing capital and liquidity adequacy under the SREP. 
 
The EBA expects to publish the final guidelines in Q2 2016.

Consultation process

Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 18 March 2016.
 
A public hearing will then take place at the EBA premises on 29 February 2016 from 14:00 to 16:30 UK time. All contributions received will be published following the close of the consultation, unless requested otherwise.