Towards a fundamental re-design of Banks’ Stress Tests in the EU?

04-10-2019

On 26 September 2019, Andrea Enria, Chair of the European Central Bank’s Supervisory Board, gave a speech on the future of stress testing (“The future of stress testing – realism, relevance and resources”) in which he outlined a proposal on how to achieve meaningful progress with a view to make the tests both more realistic and more relevant, with fewer resources required. Andrea Enria’s proposals involve a decisive re-design of the stress test exercise. Stress tests are currently carried out using a “constrained bottom-up approach” whereby supervisory authorities ensure a quality check of models run by banks. It is suggested to split stress tests into a supervisory view (“top-down” approach along the lines of stress tests under Dodd-Frank in the US) and a “banks’ view” (bottom-up approach).

On 26 September 2019, Andrea Enria, Chair of the European Central Bank’s Supervisory Board, gave a speech on the future of stress testing (“The future of stress testing – realism, relevance and resources”) in which he outlined a proposal on how to achieve meaningful progress with a view to make the tests both more realistic and more relevant, with fewer resources required. Andrea Enria’s proposals involve a decisive re-design of the stress test exercise. Stress tests are currently carried out using a “constrained bottom-up approach” whereby supervisory authorities ensure a quality check of models run by banks. It is suggested to split stress tests into a supervisory view (“top-down” approach along the lines of stress tests under Dodd-Frank in the US) and a “banks’ view” (bottom-up approach).