Deloitte comments on the European Banking Authority (EBA) results of its 2016 EU-wide stress testing exercise
29 July 2016
David Strachan, partner and head of Deloitte’s EMEA Centre for Regulatory Strategy, said:
“The headline results on capital ratios are better than what might have been expected, reinforcing greater steps towards bank resilience the sector as a whole has taken.
“The results on profitability are, though, notable. The average return on regulatory capital was low, and might have been lower still if the stress scenario had reflected the low or negative interest rate environment some economists are now predicting.
“The inclusion this year of conduct risk was an important step in ensuring the exercise took a rounded perspective on factors that could undermine resilience. With 15 banks reported to have estimated an impact of conduct risk above €1bn, it is clearly material.
“Analysts are likely to pore over the results for some time. Differences in capital positions between two banks could be superficial; what matters more is to understand the full regulatory capital requirement for each bank, and its capacity and flexibility to take actions to respond to the shock. This complexity may add difficultly in initially understanding the results.
“As resilience of banks has improved, challenges around qualitative aspects of the exercise - such as data quality and governance - have come to the fore on the ground with banks. The EBA has refrained from challenging banks publicly on those factors, but further scrutiny should be expected in future.”
Notes to editors
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