EBA, new 2023 stress tests for banks: an overview

Stress test banche

The EBA (European Banking Authority) launched the new 2023 stress tests at the end of January for 76 European banks, 9 of which are Italian. The European Banking Authority – based in Paris and created in 2011 with the aim to regulate and monitor credit institutions – will carry out these tests to check banks resilience in a comprehensive manner.

These tests will be performed during the first half the current year and banks will have to provide preliminary data to the EBA and the ECB (European Central Banks) by March 2023. Following to that, EBA and BCE will perform some checks. The results of this first phase of stress test will be published by the end of July.

The importance of stress tests

The outcomes of these stress tests are important to understand any requests related to the SREP (Supervisory Review and Evaluation Process), which allow to analyse in a consistent manner the risk profiles of banks and to adopt decisions on supervisory measures to be implemented. In details, this fundamental phase of supervisory activities will be essential for “Pillar 2 Guidance” (P2G), reflecting the level of capital that, according to the ECB, banks has to maintain in addition to mandatory capital requirements. A minimum capital requirement above which credit institutions can distribute or retain earnings and start to buy their own shares (Buy Back).

Assessment of banks resilience

Following the tests performed on 2022, focusing on green issues and climate change, the ones performed in the current year will assess EU banks resilience in a base and an adverse scenario, for 2023-2025.

Italian banks involved

The Italian banks subject to EBA stress tests are nine: Intesa Sanpaolo, UniCredit, Banco Bpm, Mediobanca, Mps, Bper, Credem, Iccrea and Cassa Centrale Banca. For this year, the Banking Authority has increased of 50% the number of credit institutions subject to these tests, which now amount at 76. These banks are included in the sample because they reached nearly a 70% coverage of the banking sector in the Euro area. In line with this extension, in Italy the number has nearly doubled: from five in 2021 to nine in 2023.

The widening of the entities involved is not the only innovation. The others refer to the methods and the procedures to perform stress tests, with the consequence that final outcomes may be different.

Methodological innovations for 2023

On November 2022, EBA publicly disclosed some methodological innovations. What are they about? In theory, the European Banking Authority will leave less autonomy to banks for the simulation of the impacts of the scenarios.

We provide some examples for a better understanding. Referring to commission income, banks are no more allowed to use internal models for the projections on macro-economic variables, but they have to rely on the models developed directly by the EBA. Also referring to the checks on credit risks of each single sector, the Authority has introduced some requirements to be fulfilled, with stricter measures. The objective is to deeply analyse banks resilience against the effects of the higher price of energy and different scenarios of change in GDP on each individual ATECO sector, especially referring to manufacturing, which is the most exposed one to the increased costs of electricity and gas and to the growing inflation.

As it is, according to EBA’s notes, the methodology for credit risk includes an increase of REA on exposures deriving from securitisations, as well as shocks for credit risk losses for sovereign exposures.


An application suite to control banking and financial information.

Click on the button and go to the TIGREARM page to discover the modules or request a 15-day free trial (for a maximum of 3 modules)

Impact of stress tests in Europe

The impact of stress tests at an EU level affects CET1 capital, which is composed by paid-up capital, reserves and retained earnings. Moreover, for each financial year, the following indicators should be reported: Tier 1 capital ratio (which represents the core capital of each bank worldwide), total capital ratio (the ratio between total supervisory capital and risk-weighted assets), as well as leverage ratio of credit institutions (i.e. the ratio between bank net capital and total assets), which allows for the assessment of the exposure to an excessive leverage.

Also, banks will be required to project the impacts of the defined scenarios using their internal models, but subject to strict limitations and an accurate review by competent authorities. For the projections of net commissions, risk-weighting factors for securitisations and credit losses of sovereign exposure, banks are required to use the parameters established by the EBA stress tests.

Risk coverage

EU-wide stress tests focus mainly on the assessment of the impact of risk factors on banks solvency. Credit institutions are required to report the following set of risks:

  • credit risk, including securitisations;
  • market risk, CCR and CVA;
  • operational risk, including behavioural risk.

In addition to the ones listed above, banks are required to project the scenarios effects on NII (Net Interest Income) or the interest margin (interest net income) and to stress profit and loss and balance-sheet items not covered by other types of risk. Risks deriving from sovereign exposures are covered by credit risk and market risk, depending on their accounting treatment.

The development of the process

The process for the performance of EU-wide stress tests implies a close collaboration among the EBA, national competent authorities and ECB, as well as ESRB (European Systemic Risk Board):

  • the macro-economic adverse scenario and the potential specific shock of the type of risks linked to the scenario are developed by CERS and ECB, in close collaboration with competent authorities, EBA and national central banks. In details, the ECB provides for a benchmark macro-economic scenario;
  • the EBA coordinates the performance, defines a common methodology, as well as minimum guidelines for quality assurance for competent authorities and hosts a tool of questions and answers. Moreover, the EBA serves as a data hub for the spreading of the common exercise. The European Banking Authority also provides common descriptive statistics to competent authorities, for the purposes of consistency checks based on banks disclosures.

Competent authorities are mandated to transmit to banks the instructions related to the conclusion of the exercise and receive the information directly from banks. Competent authorities are also responsible for the process of quality assurance. For example, to validate banks data and the outcomes of stress tests basing on bottom-up calculations, as well as to review the models applied by banks for this purpose.


An application suite to control banking and financial information.

Click on the button and go to the TIGREARM page to discover the modules or request a 15-day free trial (for a maximum of 3 modules)