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A review of stress test methodology
Journal of Securities Operations & Custody,
10
(3),
254-267
(2018)
Abstract
After a general introduction of the concept of bank stress testing, and the possible applications by different stakeholders, the paper provides an overview of the European Banking Authority (EBA) EU-wide stress test. It explains its main features, the scope of risks assessed, the different actors involved and the benefits of the exercise. It also explains the role of the EBA in the different stages of the exercise, the evolution of the exercise and its purpose as a tool to assess potential vulnerabilities of banks and their resilience to adverse market developments, provide transparency on banks’ exposures and as a supervisory tool. The paper then focuses on the 2018 EBA stress test and explains the main changes applied to the EBA stress test methodology in 2018 for the different risks. The paper pays special attention to the changes linked to the implementation of the new International Financial Reporting Standard (IFRS 9). It elaborates on the effects of IFRS 9 and the implications of the IFRS 9 rules for the credit risk stress test in terms of lifetime expected credit losses, the definition of stages and the movement of exposures between stages.
Keywords: stress testing; IFRS 9; credit risk; 2018 EU-wide stress test; EBA stress test
The full article is available to subscribers to the journal.
Author's Biography
Leonhard Riebl completed his university studies in economics as well as business administration at the Vienna University of Economics and Business with a specialisation in finance, banking and accounting. He has working experience with different international banking groups in Austria and the United States with a focus on RWA management, integrated risk management, stress testing and regulation. After working for the Austrian Central Bank in the audit of significant institutions (as part of the single supervisory mechanism) with a similar topic focus, he joined the EBA in 2017 as part of the stress testing team. Within this team, he is responsible for the area of credit risk stress testing.
Pilar Gutierrez works as a senior bank sector analyst at the EBA, where she is coordinating the EBA work on stress testing and the 2018 EU-wide stress test exercise. She is also coordinating the EBA policy work on banks’ pillar 3 disclosures, and she is a member of the Basel Working Group on Disclosures. Pilar has also been part of the team drafting the EBA annual risk assessment report and of the team in charge of monitoring the colleges of supervisors for European cross-border banking groups. Prior to joining the EBA in 2011, Pilar worked for six years as a bank supervisor at the Bank of Spain. Before that she worked in the financial services consulting industry, first in Accenture and then as a manager in Everis. She holds a degree in business administration and a master‘s degree in law, both from the Comillas Pontifical University-ICADE in Madrid.
