EBA stress test 2025 video series: (6) Update on final Methodology and Challenges

In our latest episode on PwC's Risk and Regulation News Channel, Martin Neisen and Stefan Röth delve into the final methodology for the EBA SSM Stress Test 2025.

Here are the key points discussed: 

Timeline and Submission Dates 

The stress test exercise will commence in January with the publication of the macroeconomic scenario and conclude in the summer with the results. Notably, the EBA has extended the submission date for stressed information to April, providing banks with additional time. However, the ECB's submission dates remain to be confirmed. 

CRR 3 Compliance 

A significant focus was on the challenges banks face in complying with CRR 3 rules. Banks must include CRR 3 compliant numbers for the entire year 2024. If proxies and assumptions are used, they must be carefully derived and representative. It is crucial for banks to adhere to the supervisor's guidelines.. 

Market Risk and Proportionality 

The final methodology introduces increased proportionality, categorizing banks into three different buckets based on complexity and reporting requirements. Despite the postponement of the FRTB framework by one year, it remains relevant for the stress testing exercise, along with the revised approaches for calculating CVA risk. 

Net Interest Income (NII) Challenge 

Calculating stress net interest income (NII) continues to be a significant challenge. The ECB will use a top-down approach with their own tools, making data quality paramount. Banks are advised to redevelop the ECB's tool to test their data and ensure accuracy. 

For more detailed discussions and further assistance or inquiries, please reach out to our PwC EBA SSM office. We are here to support you through the stress testing process. Stay tuned for more updates and insights on regulatory developments.

Contact:

Stefan Röth