Overview EU-wide Stress Test 2014 Mario Quagliariello – Head of the Risk Analysis Unit 24/07/2014...
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Transcript of Overview EU-wide Stress Test 2014 Mario Quagliariello – Head of the Risk Analysis Unit 24/07/2014...
Overview EU-wide Stress Test 2014Mario Quagliariello – Head of the Risk Analysis Unit
24/07/2014 - PRUEBAS DE ESTRÉS - La Visión del Regulador y el Impacto en la Banca
JORNADA DEL CLUB DE GESTIÓN DE RIESGOS - Madrid
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It's a long way to the ST … It's a long way to go…
Pre-emptive capital raising
Credit sensitivities Disclosure (capital
and sovereign)
EU-widestress test 2011
9% after sovereign buffer
EUR 204bn capital strengthening
CT1 ratio of 11.7% comparable to US
EU CT1 sufficient if RWA can be trusted
EU-widerecapitali-
sation
EBA recommendation Common definition of
NPL and forbearance CAs responsibility PIT assessment of
capital, with minimum threshold
AQRs
Forward looking assessment and reaction function
Significant frontloading
EU-widestress test
2014
Ongoing, leading to supervisory consistency, transparency and benchmarking
RWA consistency
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Capital strengthening: from the EBA recap exercise to “frontloading” ahead of stress test
T1 ratio excluding hybrid instruments after the EBA’s 2011 Recommendation reached 11.6% December 2013 (from 9.2% in Dec-2011).
Capital offerings continued in Q4 2013 and first half of 2014, both common equity and hybrids.
Issuance of equity has allowed the cleaning of balance sheets (additional provisions) and contributed to strengthening banks, with completed and announced deals since July 2013 amounting to EUR 45 billion (SSM banks - 49 banks out of the 128).
AT1 CoCos issuance (EU banks) around EUR 22bn during 2014 (as of 27 May).• 19 AT1 offerings of 10 EU banks in Q2
2014, compared to 8 offerings in total in 2013.
Tier 1 ratio – excluding hybrids (weighted average, 55 EU banks, source: KRI, RAR)
Total issuance of AT1 CoCos by EU banks in 2014 (as of 27 May, billion EUR, 10 EU banks, Source: Bloomberg, EBA calculations)
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De-risking, deleveraging and cleaning of balance sheets
European banks have accomplished significant adjustments on the asset side by• cutting risky assets (de-risking);• shrinking their balance sheets (deleveraging);• cleaning balance-sheets (loan sales and increasing
provisioning).
The adjustment accelerated towards the end of 2013 (cut-off date for the AQR and the stress test). Banks have been frontloading impairments: additional provisioning of EUR 25bn between Jun2013 and Dec2013. Also the recent increase in NPLs might to some extent reflect the new EBA definitions, contributing to a more reliable picture.
Positive developments, but no room for complacency. The AQR has to assess the reliability of balance sheets and banks may end up needing additional capital. Banks and supervisors need to be prepared and ready to take actions as a result of these exercises.
Total assets and Risk-weighted assets – EUR tn, and specific allowances for loans (source: Risk Dashboard)
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• Common methodology, templates • Data hub for final dissemination
• Common scenario (in cooperation with ECB, NCAs)
• Responsibility for the quality assurance• Assessment of the reliability and
robustness of banks’ assumptions, data, estimates and results
• Definition and communication of any additional sensitivities
• Supervisory reaction function
• Calculation of bottom-up stress test results
124 banks in 2014 EU-wide stress test
28 Nations, 28 National Supervisory Authorities and ECB
Who does what
European Systemic Risk BoardEuropean Commission
European Banking Authority
Non-SSMNational Competent
Authorities
SSMECB, National
Competent Authorities
20 Non-SSM banks 104 SSM banks
Joint work and inform
ation sharing
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What drives the EBA stress test methodology
Why an EU-wide stress test? Comparable and transparent identification of potential risks across the entire EU
Tools
Transparency
Cooperation
Comprehensive, consistent and relevant scenario Constrained bottom-up methodology (key features, risk quantification,
templates for data collection) Benchmarks
Detailed disclosure to inform supervisors and market participants
Cooperation amongst supervisors and other involved parties
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Overview key features (1/2)
• Highest level of consolidation• Perimeter of the banking group as defined by the CRD/CRRConsolidation
• Common baseline and adverse macro-economic scenarios and stressed market parameters for positions sensitive to a change of market prices
• CAs may develop additional sensitivities to incorporate country specific featuresScenario
• Consolidated year-end 2013 figures• Scenarios applied over a period of three years (from 2014 to 2016)
Time-horizon and reference
date
• CET1, with transitional arrangements; CoCos converting into CET1 or written down upon trigger are reported if trigger is above the CET1 ratio in the adverse scenario
• CAs may, in addition, assess the impact of the stress test on other yardsticks• Common application of prudential filters
Capital
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Overview key features (2/2)
• 8% Common Equity Tier 1 ratio for the baseline scenario• 5.5% Common Equity Tier 1 ratio for the adverse scenario• CA may calibrate possible supervisory measures based on a ladder of intervention
points and set higher hurdle rates
Hurdle rate
• Zero growth assumption for baseline and adverse scenario and same business mix• Assets and liabilities that mature replaced with similar financial instruments in
terms of type, credit quality and original maturity; no workout of defaulted assets• Exemption due to mandatory restructuring plans announced before reference date
Static balance sheet
• Solvency stress test – credit risk, market risk, sovereign risk, securitisation, cost of funding, non-interest income and costs, operational risk; no liquidity stress test
• CAs may include additional risks but results reported under common approachRisk coverage
• EBA responsible for common methodology, templates, disclosure• Competent authorities responsible for quality assurance, additional
sensitivities/scope/yardsticks, reaction function• Outcome of AQR may inform starting point
Process
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Overview disclosure: 9 templates, 12k data points
• Main P&L items like net interest income, net trading income, impairments for financial assets and other comprehensive incomeP&L
• Exposure, RWA, value adjustments, provisions, default and loss rates• No disclosure of credit risk parameterCredit risk
• Market risk position by main risk typesMarket risk
• Securitisation exposure, RWA and impairmentsSecuritisation
• Sovereign exposure by country, maturity and accounting treatmentSovereign
• RWA by risk typeRWA
• Capital position, components, adequacy including, stressed• Capital restructuringCapital
~130
~6,500
~40
~50
~4,930
~50
~310
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Tentative time line
April May June July August September October
Advance data collection ST calculation by banks Iteration with
banks
Publication ECB benchmarks
Submission close-to-
final results to EBA
Publication methodology,
templates, scenario
Workshop with banks
Submission first results to
EBA via CAs
EBA feedback on results
to CAs
Publication of results
Disclosure preparation
Prepa-ration
Calculation
Disclosure
Milestones
Finalisation methodology,
templates, scenario
29/04/14
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Process is ongoing and on track (1/2)
The publication of the stress test methodology and scenarios took place on 29 April 2014.
An EBA “Q&A” process is in place to ensure immediate support to banks and supervisors. • We have received more than 1000 questions from banks and published on the EBA extranet. • The EBA QA team is liaising with the ECB as well as NCAs for more complex or controversial issues.
Banks have submitted the data for the advance data collection and preliminary results.• The EBA has run statistical quality checks and provided feedback to NCAs• The EBA distributed benchmarks on the stress test starting point in June to NCAs as originally planned
and currently working on “deltas”.• Benchmarks to be used as part of the quality assurance process NCAs and ECB are carrying out
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Process is ongoing and on track (2/2)
The EBA is currently discussing details of communication in liaison with SSM colleagues as well as non SSM countries.• Including disclosure of additional national sensitivities, and• Stress test outcome for subsidiaries• Possible additional yardsticks/metrics to be disclosed • Interaction with banks
EBA is facilitating the cooperation and coordination between home and host authorities in the stress test as well as in the AQR
Quality assurance and join-up of AQR and ST, led by competent authorities, are key for the success of the exercise.
EUROPEAN BANKING AUTHORITY
Tower 42, 25 Old Broad StreetLondon EC2N 1HQ
Tel: +44 2073821770Fax: +44 207382177-1/2
E-mail: [email protected]://www.eba.europa.eu