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Can EU Banks Remain Resilient As Stress Tests Sweep the Region?
By Nik Venema | March 7, 2014

Early February saw the European Banking Authority announce key features of the 2014 EU-wide stress test to be implemented on a sample of 124 EU banks. The recommendations include the use of unique identification codes for supervisory purposes for every bank and financial institution in the EU. From the summer of 2014 onward, national regulators will be required to submit data to the EBA on this sample of 124 EU banks under the Implementing Technical Standards on supervisory reporting, covering areas like funds, financial information, liquidity ratios and asset encumbrance.

"The objective of the EU-wide stress tests is to assess the resilience of financial institutions in the EU to adverse market developments and assess the potential for systemic risk to increase in situations of stress. The evaluation is based on consistency and comparability of the outcomes across banks," the EBA said.

The deadline for national regulators to notify the EBA on their cooperation is March 29, 2014. With this upcoming deadline less than a month away, the resilience of EU banks will be assessed for 2014-2016 against a common set of risks including credit risk, market risk sovereign risk and cost of funding. The stress test is part of the EBA’s preparation of the Single Supervisory Mechanism to be announced later this year. With the methodology and scenario scheduled to be published next month, the banks’ individual results are slated to be released in the Fall of 2014, while the EBA will be providing pan-European benchmarks and act as the centralized “data hub” for cooperation and delegation between the banks as well as the competent authorities (CAs) to oversee this entire exercise in order to check the quality of the results.