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Optimal severity of stress test scenarios
Regularly conducted stress tests constitute a constraint on bank balance sheets: future equity must suffice to maintain current lending even after absorbing severe losses. Studying such a forward-looking constraint in a representative bank model,...
At the request of the European Parliament’s Economic and Monetary Affairs Committee (ECON), the authors discusse how EU case law developed over the past decade relating to decisions taken by the European Central Bank within the Single Supervisory Mechanism (SSM) and within the Single Resolution Mechanism (SRM). The cases centre around embracing and solidifying the BU framework, inter alia, with the admissibility to challenge ECB’s supervisory and licence withdrawal decisions, the application of national law by the ECB in its supervisory competence and the methodology attached to the setting of administrative pecuniary penalties. Other cases concern the determination of the ex-ante contributions to the Single Resolution Fund, the perimeter of resolution decision-making, and the responsibility of the decision-making bodies involved in the resolution process.