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Stress Testing in Europe: a Primer

The latest online seminar organised by the Florence School of Banking and Finance on 27 February 2019 focused on the topic of stress testing which, understood as a tool for assessing banks’ resilience to an extreme but plausible adverse scenario, is a crucial part of banking supervisors’ toolbox.

The main presentation was delivered by Mario Quagliariello, Director of the Economic Analysis and Statistics Department at the European Banking Authority. After introducing the general objectives of stress testing, he illustrated how the EU-wide stress testing work in practice, highlighting particularly the main features and scope of the 2018 exercise. Then, he proceeded to present its results, interpreting them in the light of the macroeconomic scenario and concentrating on key elements such as their impact on aggregate capitals, on individual banks and on the markets. The presentation was concluded by a recap of the lessons learned in this activity and some recommendations for the way forward.

The event then continued with a presentation by Klaus Düllmann, Head of SSM Risk Analysis Division at DG Micro-prudential Supervision IV at the European Central Bank, who presented the two supervisory stress test exercises for significant institutions performed by the SSM in 2018, stressing the role of the ECB and the setup of the exercise before discussing the results on different set of banks. Finally, he compared the 2018 exercise with similar stress tests conducted in the US, UK and by the IMF.

Download the presentation by Mario Quagliariello

Download the presentation by Klaus Düllmann