2021/01/29

The European Banking Authority (EBA) and European Central Bank (ECB) launched their 2021 EU-wide stress tests to assess the impact of an adverse macroeconomic scenario on the solvency of a sample of 50 EU banks – 38 from countries under the jurisdiction of the Single Supervisory Mechanism (SSM). The adverse scenario reflects the main financial stability risks that have been identified by the European Systemic Risk Board (ESRB) - a prolonged COVID-19 scenario in a ‘lower for longer’ interest-rate environment, in which negative confidence shocks would prolong the economic contraction, so that by 2023, at EU level, the real GDP would decline by 3.6% cumulatively, unemployment rate would rise by 4.7 percentage points, residential real estate prices would decline by 16.1 %, and commercial real estate prices would decline by 31.2%. Equity prices in global financial markets would fall by 50% in advanced economies and by 65% in emerging economies in the first year.

In parallel, the ECB also plans to conduct its own stress test for 53 banks it directly supervises but that are not included in the EBA-led stress test sample. This exercise will be consistent with the EBA’s methodology and apply the same scenarios, while also including proportionality elements as suggested by the overall smaller size and lower complexity of these banks.

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