ECB plans stress test for 99 lenders in 2023

The European Central Bank (ECB) has announced that it will be performing stress tests on 99 banks in 2023. 57 of the euro area’s largest banks, which cover approximately 75% of the area’s banking assets, will be tested as part of the European Banking Authority (EBA) coordinated stress test. Meanwhile, the ECB will perform its own stress test on 42 medium-sized banks that were not included in the EBA sample due to their size.

The stress tests will be coordinated by the EBA in collaboration with the ECB and national supervisory authorities. The methodology, scenarios and templates for the test will be provided by the European Systemic Risk Board (ESRB) and results will be published by the end of July 2023. The stress test will aim to assess the resilience of banks under adverse conditions.

This year’s stress test will take a bottom-up approach with some top-down elements. Banks will use their own models to project the impact of the scenarios and the results will be subject to review by the competent authorities. For the first time, banks will report their expected losses at sectoral level and the ECB will perform a deep dive on leveraged finance exposures for selected banks.

The stress test results will be used to update each bank’s Pillar 2 Guidance and will also inform other supervisory activities. The ECB will also assess the macroprudential implications of the exercise for the euro area.