AFME is pleased to note that the European banking system remains well capitalised even after taking account of the impact from extremely harsh assumptions which formed the basis of the test.
“The EBA’s stress test adverse scenario was based on a narrative of
an extended Covid-19 outturn in a “lower for longer” interest rate
environment in which negative confidence shocks would prolong economic
contraction. The assumptions used for economic growth, unemployment and
market stress were substantially more severe than those applied in
previous stress exercises and have become far less plausible in the
light of a stronger than anticipated recovery from Covid-19, subsequent
upgrades to economic forecasts and resilient market performances. While
it is acknowledged that the improved economic outlook has benefitted
from substantial fiscal and monetary support from governments and
central banks, it is nevertheless imperative that when reviewing the
stress test results that this “distance to reality” is recognised and
taken into account in supervisory actions particularly in relation to
Pillar 2 guidance and when evaluating distribution policies.”
“AFME and its members continue to support a robust European stress
testing framework to determine the resilience of banks and the financial
system against long tail risks and look forward to contributing to its
further development.”
AFME
© AFME
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