The macroeconomic scenario for the EBA's stress test of European banks has been finalised


The European Banking Authority (EBA), together with the national financial supervisory authorities, is carrying out a stress test of the European banking sector, which will run until the autumn. The most recent joint EU stress test was carried out by EBA in 2011 and the objective of these tests is to help supervisors assess the banks' resilience to adverse market developments. This year's stress test covers 124 banks within the EU, which means that at least half of each country's banking system is included. In Sweden, it is the four major banks that are covered by the test and it is Finansinspektionen, the Swedish financial supervisory authority, which is responsible for the exercise.

Today, the EBA published details of the macroeconomic scenario that is to be used in the EBA's stress test. The scenario has been designed by the European Systemic Risk Board (ESRB), which means that the European Central Bank (ECB) and the national central banks within the EU, the financial supervisors at both EU level and national level and the European Commission have all taken part in the work.


The macroeconomic scenario in the stress test was constructed on the principle that it should reflect a less probable, but plausible, macroeconomic development. Given this principle, the scenario has as its starting point a sudden rise in investor aversion to long-term fixed income securities, which leads to an unexpectedly rapid increase in long-term government bond yields in the United States. In the scenario, this development ultimately leads to a severe deterioration in global economic activity over three years, which also affects the European countries, resulting in rising unemployment and falling GDP and asset prices.


The intention is that the results of the EBA's stress test of the European banking system will be published in October 2014. Detailed information on the method and scenario as a whole can be found on EBA's web site. In January this year, the EBA published a general outline of the stress test.

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