Just before the European Central Bank (ECB) takes over the regulation of the 123 big banks in Europe on November 4th, the European Banking Authority (EBA) publishes the results of the EU-wide stress test. The purpose of the stress test is to test how healthy banks are, how is the resilience of the EU-banks at adverse economic developments. The EU-wide stress test is coordinated by the EBA and carried out in cooperation with the European Central Bank (ECB), the European Systemic Risk Board (ESRB), the European Commission (EC) and the Competent Authorities (CAs) from all relevant national jurisdictions.
The 123 large EU-banks have done the stress test. The results show an overall impact of the adverse macroeconomic scenario on the Common Equity Tier 1 ratio (CET1 ratio) of 260 basis points over 3 years, with CET1 decreasing from 11.1% in 2013 to 8.5% in 2016. The joint effect of the Asset Quality Review (AQR) and the stress test is 300 basis points. Over the three-year horizon of the exercise, 24 banks would fall below the 5.5% CET1 threshold and the overall shortfall would total EUR 24.6 bn.
The main drivers for this impact are credit risk losses, which account for 440 basis points of CET1 ratio decrease and an increase in total risk exposure (110 basis points).
The impact of the stress test on banks’ capital positions is assessed taking into account the national transitional arrangements provided for in the Capital Requirements Directive (CRDIV) and Capital Requirements Regulation (CRR). However, to ensure consistency and comparability, the EBA is, for the first time, disclosing the impact of the stress test also on the future fully implemented CRDIV/CRR capital ratios. This additional disclosure will help market participants better understand the pathway towards the full implementation of the CRDIV/CRR. For the banks in the sample, the fully loaded CET1 ratio in 2016 under the adverse scenario would be 7.6%.