For 2023 the stress tests of the banks are going

By Leonidas Stergiou

The European Banking Authority (EBA) has announced that the pan-European stress tests of systemic banks will take place in 2023 and not in 2022, as European banking institutions are in the process of improving their capital. Also in 2022, the period when the ECB gave banks the flexibility to use categories of funds that are not included in the supervisory, due to the pandemic, expires. In addition, in 2022 the costs of transition to the new international accounting standards and Basel III will be recorded.

In 2022, they will run two half-yearly transparency stress tests, as is done every year, with the difference that this time the supervisory authorities will prepare the banks for the new way of controls and the rules of disclosure of their sizes. It is noted that these do not include scenarios (positive, basic and unfavorable).

The transparency stress test every six months comes to capture the key figures and risks of European banks in a common and comparable way. On this occasion, the supervisory authorities will cooperate with the banks so that the banks themselves apply common methodologies and terms, without the need for EBA to analyze and reclassify the sizes. The transparency stress test is an opportunity to communicate and incorporate changes in the supervisory criteria for 2022-2024, which give weight to the measurement of the effects of the pandemic. They also incorporate other supervisory priorities, such as climate change, and even the ability of administrations.

At the same time, the European supervisory authorities have prepared a new guide on how banks should present the results and the various indicators, in order to use common terminology and methodology. This is considered important for transparency and comparison of sizes between banks. For example, there are differences in the concepts of operating and organic profits, concepts such as pre-forecast operating result, CET1 and CET1 fully loaded, red loan ratios that sometimes include bond loans, etc. are used.

In the 2023 stress test, banks will be tested with three scenarios (positive, key and unfavorable), which will be developed in cooperation with the ECB, the SSM and the national central banks. These will include new risks arising from the pandemic and the restart of economies, such as liquidity and the necessary capital in dollars (monetary policy, exchange rates, interest rates, inflation), extreme environmental risk conditions, etc.

Although the details for the full planning of the stress tests of 2023 have not been announced yet, they will not work like those of 2021 that did not have the form of “pass-cut”. accounting for 70% of the total assets of the European banking sector, there will be indicators and criteria for the impact of the pandemic and exposure to climate change and about 2 million data will be analyzed by all banks (approximately 40,000 data from each).