EBA欧洲银行-2016-EU-wide-stress-test-Adverse-macro-financial-scenario_15页_301kb

Summary of the EBA 2016 EU-wide Bank Stress Testing Adverse Scenario

Core Content

The European Banking Authority (EBA) conducted a 2016 EU-wide stress testing exercise, which involved analyzing an adverse macro-financial scenario that spans three years, starting from Q1 2016 to 2018. This scenario is designed to evaluate the potential adverse impacts on profit generation and capital for EU banks, based on macroeconomic and financial shocks.

Main Risks to Financial Sector Stability

The adverse scenario reflects four systemic risks identified by the European Systemic Risk Board (ESRB) as the most significant threats to the stability of the EU financial sector:

1. Abrupt reversal of compressed global risk premia, amplified by low secondary market liquidity

   • This risk is considered the most significant and leads to rising long-term interest rates and risk premia in the US and other non-EU advanced economies.
   • It triggers a confidence-driven contraction in emerging markets and affects EU exports due to weaker global trade.

2. Weak profitability prospects for banks and insurers in a low nominal growth environment, with incomplete balance sheet adjustments

   • This leads to demand shocks in EU countries, impacting investment and consumption.

3. Rising debt sustainability concerns in the public and non-financial private sectors

   • This is linked to sovereign and corporate credit spreads widening across the EU.

4. Prospective stress in a rapidly growing shadow banking sector, amplified by spillover and liquidity risk

   • This leads to tighter financing conditions, shrinkage in asset prices, and reduced economic activity.

Key Macro-financial Shocks

Table 1: Financial and Economic Shocks

Table 2: Long-term Interest Rate Shocks

Table 3: Exchange Rate Shocks

Table 4: Stock Price Shocks

Table 5: Real GDP and Inflation for Non-EU Economies

Table 6: GDP Growth in EU Countries

Key Outcomes

• EU GDP deviates from the baseline by 3.1% in 2016, 6.3% in 2017, and 7.1% in 2018.
• Domestic demand is the primary driver of GDP decline, with private consumption and investment dropping significantly.
• Foreign demand shocks add an additional 2.7% to the GDP deviation in 2018.
• Stock prices in the EU decline by 25% in 2016, with a mild recovery by 2018, resulting in an average deviation of 16%.
• Long-term interest rates in the EU rise by 71 bps in 2016, 80 bps in 2017, and 68 bps in 2018.
• House prices across the EU fall by 6%, with a common shock of 7.5% and country-specific exogenous shocks.
• Exchange rates in CEE countries depreciate by 8%–24% against the euro in 2016, and remain at weaker levels thereafter.
• Swiss franc appreciates by 23% against the euro.
• Global economic growth is significantly reduced, with developed economies growing 2.5%–5% less than the baseline in 2016–2017.
• Emerging economies like Brazil, Russia, and Turkey face stronger impacts, while China and India are 4.5% below baseline in 2018.
• EU exports face a demand reduction of 8% in 2017 and 6.5% in 2018.
• Sovereign credit spreads widen across the EU, and corporate credit spreads are also affected.
• Shadow banking contributes to tighter financing conditions, impacting lending standards and economic activity.

This adverse scenario highlights the interconnectedness of global financial markets and the EU, emphasizing the need for robust risk management and capital adequacy in the banking sector.