Stress testing was first introduced as a reaction to the last financial crisis. The European Banking Authority (EBA) Regulation (EU) No 1093/2010 empowered the EBA to prepare a framework for EU-wide stress tests in the banking sector, which are expected to be carried out every two years. For the 2018 stress-testing exercise, the EBA has already published a draft methodological note, which identifies the relevant factors and criteria for the exercise.
Stress testing denotes a simulation of times of financial insecurity or instability. The resilience of finance market participants is tested by implementing scenarios specified in regularly updated guidelines (for example, a substantial credit default). The institution’s reaction to the specific scenarios (e.g. covering losses with highly liquid assets) is measured and reported.
The stress-test results are used to identify and close potential security gaps in the financial system in order to prevent another transnational economic crisis. In addition, risk assessment requirements have risen for all banks – for example, through the Minimum Requirements for Risk Management (Mindestanforderungen an das Risikomanagement – MaRisk) and the Supervisory Review and Evaluation Process (SREP) - and stress testing is now expected to form an integral part of internal risk management for all banks - even for those that do not participate in the EBA stress-testing exercise.
BearingPoint provides with its module “EBA-Stresstest (Kreditrisiko)” reporting software that fulfils all the EBA stress-testing reporting requirements. The module delivers a consistent calculation of the relevant scenarios and simulations with all the necessary reporting data and thus avoids the need for manual adjustments.