EU-wide stress test benchmark 2018

The EU-wide stress test is a regular stress test assessment conducted under the supervision of the European Banking Authority (EBA).

In 2018, we conducted a survey on the methodologies used in the operational risk component among ORX member institutions. Twenty-seven banks from 12 EU countries took part in the survey.

The final report, which was shared with project participants, collated the results from the survey and gave insights into the methodologies, the approaches firms take to identify conduct risks and the use of macroeconomic factors in stress testing. It was also the basis for discussions at a roundtable which we held in Frankfurt in May 2018. You can download a summary of the report below. 

EU-wide stress test benchmark highlights

Banks are fine-tuning their approach rather than making radical changes

Given the limited changes to the EBA’s instructions, banks are largely fine-tuning their approaches, rather than overhauling them.

Estimating material conduct risk exposures differs considerably in how SME input is used

The use of consensus approaches and loss distribution approaches are very common. SME inputs are also used to make projections based on historical loss averages. Several firms indicate they use other qualitative approaches in combination, such as scenarios, risk drivers and external loss data.

Non-material and other operational risk losses estimated using similar techniques

The methods used for non-material and other operational risk losses are predominantly statistical methods, such as loss distribution or regression.

External loss data plays a key role, but is used very differently among respondents

Two thirds of respondents are planning to use external loss data in their submissions, often as a direct input in the model.

Majority use BEICF data in one way or another, while the use of risk drivers is not as widespread

Fifty-six percent of participants use business environment and internal control factors (BEICFs) in the stress test.