Andria Enria, Chair of the Supervisory Board of the European Central Bank (ECB), spoke on improvements in stress testing to make them more realistic and relevant without taking up more resources, suggesting the splitting of microprudential stress tests into a bank view and a supervisory view – to be disclosed next to each other. The bank view would stem from a largely unconstrained bottom-up approach without quality assurance, but banks would have to explain where and why they deviate from the constraints. This would allow each bank to account for its individual circumstances and to have an added incentive to invest in risk management. The stress test could provide useful, granular information to the markets. The supervisory view would rely on a constrained bottom-up approach, and top-down models would be used to provide quality assurance for the results and focused benchmarking. The approach would be very similar to that followed in 2018; however, some methodological constraints, including the static balance sheet assumption, could be relaxed somewhat to increase realism. Likewise, the exercise could be streamlined and thus require fewer resources. First, there would be fewer quality assurance cycles, as bank view and supervisory view would not need to be aligned. Second, only capital depletion would be published from the supervisory view, making it less granular. Third, some design features of the bank view and the supervisory view could be aligned to avoid duplications. Top-down stress tests would support quality assurance at first; but in the longer run, as accuracy and reliability improve, more reliance might be made on the top-down stress tests themselves.

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