Stress tests show resilience of European banking sector

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The European Banking Authority (EBA) and the European Central Bank (ECB) have published the results of the European banking stress tests carried out earlier this year. As the Dutch prudential supervisory authority, De Nederlandsche Bank (DNB) endorses the conclusions of the EBA and ECB that European banks are resilient in a scenario of severe macroeconomic shocks.

Published: 28 July 2023

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The three-year stress scenario involves sharp economic contraction and high inflation, combined with steep falls in asset prices and rising interest rates. As a result, the core Tier 1 (CET1) capital ratio of the euro area banks would fall by an average of 4.8 percentage points to 10.4%. The CET1 capital ratio is an important measure of a bank's financial health. The stress test also confirms the resilience of Dutch banks, despite the relatively severe macroeconomic scenario for the Netherlands.

The EBA and the ECB carry out a two-yearly stress test exercise to assess the resilience of the largest European banks, identify potential risks, inform supervisory decisions and promote market discipline. The 70 largest European banks participated in the EBA-coordinated exercise, including 4 Dutch banks: ING, Rabobank, ABN AMRO and De Volksbank. The ECB also carried out a stress test at 41 medium-sized banks in the euro area, including BNG Bank and NWB Bank.

The stress tests serve as input for the annual Supervisory Review and Evaluation Process (SREP). More specifically, the quantitative impact of the stress test is a starting point for supervisors to determine the level of Pillar 2 Guidance (P2G). The P2G tells banks how much capital they should hold to absorb shocks. For the first time, the impact of the stress test has also been used to determine the P2G for the leverage ratio.

Read the press releases of the EBA and the ECB.

For more information, please contact Tobias Oudejans at 06-52496961.

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