Unveiling the European Central Bank’s strategy: data, scenarios and models

In January 2024, the European Central Bank (ECB) published its Climate and Nature Plan for 2024-2025. This plan aims to: clarify what actions the ECB intends to take to progress its climate and nature agenda; and define what banks need...

EBA considers bottom-up stress testing with top-down elements

The European Banking Authority (EBA) is tasked, in cooperation with the European Systematic Risk Board (ESRB), to initiate and coordinate biennial EU-wide stress testing exercises to assess the resilience of institutions to adverse market developments. The objective is to provide...

The FED announced a pilot climate scenario analysis exercise for early 2023

The Federal Reserve Board (FED) will commence its first bottom-up climate scenario analysis exercise at the beginning of 2023, as announced on 29 September. The exercise will be exploratory in nature and will not result in extra capital requirements. The...

Results of the ECB 2022 climate risk stress test

The first supervisory climate risk stress test (2022 CST) conducted by the European Central Bank (ECB) has concluded with official results and findings made public on 8 July 2022. The exercise has complemented the broader ECB’s agenda to assess the...

First ACPR climate stress test pilot exercise results

Climate change introduces considerable economic challenges. On the one hand, financial institutions must contribute to the transition to a low-carbon and balanced economy to effectively combat global warming. On the other hand, the financial sector is exposed to climate-related and...

The Single Supervisory Mechanism: Post-pandemic actions and expectations

On 30 July, the European Central Bank unveiled the 2021 supervisory stress test results, which demonstrated that the region’s banking system is resilient in an unfavourable environment. The Common Equity Tier 1 (CET1) ratio has fallen 5.2% to 9.9% under...

Benchmark study of approaches to estimate probability of default in the context of climate risk

Recently, initiatives to tackle climate-related and environmental risks in the financial services industry have begun across the world. These initiatives followed the adoption of the United Nations Paris Agreement on climate change, the 2030 agenda for Sustainable Development and the...

Managing an increase in bank credit risk

While 2020 went relatively smoothly for the banking sector, uncertainties remain on the potential effects of Covid-19 on the real economy. Any negative impact could lead to heavy losses for the sector, especially when support measures are gradually phased out....

The impact of credit risk on 2021 stress tests

On 13 November 2020, the EBA published the final methodological note for the 2021 EU-wide stress-testing exercise. The aim of the stress tests is to assess the resilience of financial institutions to adverse economic and financial developments, in particular in...

2021 Stress testing the UK banking system: the Bank of England’s approach

March 2020 marked the first time - since its inception in 2014 - that the Bank of England (BoE) cancelled its annual stress tests for the UK’s biggest lenders. Instead, they undertook a desktop analysis of the UK banking sector...

Bank stress tests – the post Covid agenda

In the early 1990s, stress tests became a popular internal tool for international banks to examine risks and gain a better understanding of threats to the institutions' balance sheet. From there, the Basel Accord was amended in the mid- '90s...

Federal reserve board publishes 2020 stress testing results and additional sensitivity analysis

The Federal Reserve Board released stress test results for DFAST 2020 including additional sensitivity analysis, considering the COVID19 outbreak, to assess the resiliency of large banks under three hypothetical recessions, or downside scenarios, that could result from the coronavirus event....

European banks are better armed against macro-economic shocks

On Friday 2 November, as expected, the European Banking Authority (EBA) published the results of the 2018 EU wide stress tests on European banks’ solvency in the event of macro-economic shocks. This was the fourth exercise of the now-biannual testing...

Overview of the US Stress Test Scenarios Vs. the European Scenarios

On February 1, 2018, just one day after the European Banking Authority (EBA) officially kicked off its EU-wide stress test exercise, the Federal Reserve Board (FRB) released the applicable scenarios for its own US stress test.  2018 US Stress Test...

Overview of US stress tests and CCAR’s results 2016

The Federal Reserve disclosed the results of its annual supervisory stress tests and CCAR (Comprehensive Capital Analysis and Review) respectively on 23 and 29 June 2016. In a combined exercise which has been running since the financial crisis, 33 US...