Page 67 - EBA 2015.1815 Annual report 2014 web 2

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2 0 1 4 a n n u a l r e p o r t
65
Other reports
Besides regular reporting, the EBA also con-
tributed to ad hoc studies. In line with Article
161(9) of Directive 2013/36/EU (CRD), the EBA
was mandated to produce a report on credit
institutions’ use of, and benefits from, ESCB
central banks longer-term refinancing opera-
tions and similar central bank funding support
measures. At the end of June 2014, the report
was submitted to the EC and published on the
EBA website. Furthermore, in cooperation
with EU NCAs, the EBA produced a number of
thematic studies on banks’ business models,
implications of regulatory measures for busi-
ness models and the risks of cost cutting.
The EBA also makes use of market data,
market intelligence and supervisory sources
to provide information to its Board and other
public authorities. For example, it produces
weekly newsletters on liquidity and funding,
and market development and the quarterly EU
banks’ performance reports.
EU-wide stress test
One of the key tasks assigned to the EBA is
to initiate and coordinate an EU wide stress
test in cooperation with the ESRB, the ECB,
the EC, and the competent authorities from all
relevant national jurisdictions.
The objectives of the exercise are to assess
the resilience of banks in the EU to adverse
economic developments; to help supervisors
assess individual banks; to contribute to un-
derstanding systemic risks in the EU; and to
foster market discipline. The EBA undertook
such an exercise in 2014 based on common
macroeconomic scenarios and a consistent
methodology. It also provided unparalleled
transparency into banks’ balance sheets and
the potential impact of severe but plausible
shocks on them. The results of the stress test
were published in October 2014.
One difference from the previous stress tests
exercise was that for the first time, the partici-
Level of risk
Last quarter (memo)
Current quarter
Bank risk
Risk drivers
Level
Expected
trend
Level
Forward
trend
Contributing factors/interactions
E N V I RONME N T
Regulatory
environment
Regulatory
initiatives
¾
Ú
¾
Ú
Regulatory clarity has further improved, though execution risks remain
ahead, e.g. on TLAC / MREL and new regulation in respect of the
application of the internal rating based approach.
Fragmentation Continued lack
of confidence,
sovereign/bank
link
¾
Ú
¾
Ú
Despite certain improvements, geographical fragmentation in respect
of asset quality, bank restructuring and of funding conditions continues
in the EU, mainly between large cross-border banks and smaller banks,
but also between countries. Rates for similar companies still diverge in
different countries. There is an ongoing low level of cross-border lending,
and some retrenchment of banks to home markets can be observed.
It remains an expectation that the linkage between banks and their
sovereigns will decrease in future again.
Sovereign risk Fiscal policy &
effectiveness,
debt
restructuring
¾
Ü
¾
Ú
Non-negligible fiscal deficits persist throughout the EU. It is not yet clear
if fiscal policy will coincide with monetary policy to reduce deflationary
risks. There is again an increasing risk of debt restructuring of some
countries.
LEVEL
TREND
The level of risk summarises, in a judgmental fashion, the probability of the materialisation of
the risk factors and the likely impact on banks. The assessment takes into consideration the
evolution of market and prudential indicators, NSAs and banks’ own assessments as well as
analysts’ views.
High
Û
Increasing
Medium
Ú
Stable
Low
Ü
Decreasing