EBA欧洲银行-GL03feedbackst_24页_365kb

Summary of Feedback to the Consultation on "Technical Aspects of Stress Testing under the Supervisory Review Process – CP 12"

Core Content

CEBS published CP12 on 9 June 2006, focusing on the technical aspects of stress testing under the supervisory review process. The consultation period ended on 30 September 2006, during which nine responses were received and published on the CEBS website. Before the public consultation, CEBS had engaged with industry experts through two special meetings to gather input. This summary outlines the key points from the consultation, main concerns, and CEBS' responses and amendments.

Main Points and Key Views

General Comments

• Support for CP12: Most respondents welcomed the guidelines, recognizing the importance of stress testing as part of the risk management process. They appreciated the close dialogue between CEBS and the industry and the pre-consultation amendments.
• Role of Stress Testing: Stress testing is seen as an internal tool and not an end in itself. It should provide complementary insights rather than a complete picture of an institution's risk profile.
• Proportionality and Flexibility: The principle of proportionality is widely supported, and respondents emphasized the need for flexibility in stress testing to accommodate different institutional needs.
• Capital Add-ons: Capital add-ons are considered one of several possible responses to negative stress testing outcomes. Some respondents felt the emphasis on capital add-ons was excessive and suggested reducing their references.
• Definition of "Exceptional but Plausible": There was a call for a clearer definition of this term, but CEBS decided not to add more detail to avoid being too prescriptive.

Specific Comments

• Operational Risk: One respondent proposed a specific sub-section and annex on operational risk, but CEBS decided to reserve this for future revisions due to the complexity and ongoing development of the topic.
• Clarification of Terms: Some respondents wanted to merge or delete certain terms like "sensitivity analysis" and "scenario tests" or replace "factor model" with "portfolio model". CEBS agreed to some clarifications and made wording adjustments accordingly.
• Scope of Stress Testing: A few respondents questioned the mandatory nature of stress testing for all material risks, while others wanted to ensure sufficient flexibility in the design of stress tests.
• Frequency and Time Horizon: The time horizon of stress tests should be determined based on the maturity and liquidity of the positions under stress. Some respondents suggested "defeasance period" as a more accurate term.
• Ad Hoc Stress Testing: There were concerns about the interpretation and comparability of ad hoc stress tests. CEBS emphasized that supervisors should discuss feasibility with institutions and that such tests are not a standard requirement.
• Data Quality and IT Systems: The use of accurate and representative data is essential, and the principle should be applied in a realistic and evolutionary manner.

Key Changes Made by CEBS

• Para 2: Added a cross-reference to ST14 to clarify that stress testing does not automatically result in capital surcharges.
• Para 15–16: Merged para 17 into para 15 to clarify that the categorization of stress testing techniques is illustrative.
• Para 18: Shifted the earnings paragraph to a more prominent position and replaced "should assess" with "should consider assessing" to emphasize flexibility.
• Para 23: Kept the last sentences of sub-bullets but reinforced the link to ICAAP 7.
• Para 27: Deleted the last sentence due to concerns about its prescriptive nature.
• Para 28: Replaced "justify" with "explain" to reflect the institution's responsibility in the stress testing process.
• Para 31: Removed the word "may" to clarify that the structure of ICAAP influences the level of stress testing.
• Para 35: Added the phrase "where applicable" and an example about the time to re-balance a portfolio.
• Para 30: Clarified that quantitative evaluation of stress testing scenarios is not required, and that institutions should explain their choices.
• Para 30 (last bullet): Replaced "hold" with "keep" to avoid implying a mandatory capital buffer.

Conclusion

CEBS has considered and addressed a range of industry feedback on CP12, making targeted amendments to enhance clarity, flexibility, and proportionality in stress testing. The guidelines remain principle-based, avoiding overly prescriptive language, and stress testing is positioned as an essential but flexible component of risk management. The final version of CP12 reflects a balanced approach that respects both the discretion of institutions and the supervisory oversight required to ensure sound risk management practices.