Overview EU-wide Stress Test 2014

Transcription

1 Overview EU-wide Stress Test 2014 Mario Quagliariello Head of the Risk Analysis Unit 23/05/ Executive Banking Briefing - Athens

2 Agenda 1 Context 2 Key features 3 Quantification of different risk types 4 Process and time line 2

3 Supervisory stress testing in the EU 2014: Where are we? EU-wide stress test 2011 EU-wide recapitalisation AQRs EU-wide stress test 2014 Pre-emptive capital raising Credit sensitivities Disclosure (capital and sovereign) 9% after sovereign buffer EUR 204bn capital raised CT1 ratio comparable to US EU CT1 sufficient if RWA can be trusted EBA recommendation Common definition of NPL CAs responsibility PIT assessment of capital to recapitalise Forward looking assessment and reaction function Focus today RWA consistency Ongoing, leading to supervisory consistency, transparency and benchmarking 3

4 3. EBA stress testing towards 2014 EBA Core Tier 1 capital ratio dispersion measures (median, average, interquartile range, 5th and 95th percentiles)

5 Motivation: Multi country multi institution Motivation Components of EU-wide stress test Why? Microeconomic perspective Assessing cross border groups Comparability across markets Macroeconomic perspective Concentrations and correlations Tools Comprehensive, consistent and relevant scenario Constrained bottom-up methodology (key features, risk quantification, templates) Systemic shocks Transparency Detailed disclosure to inform supervisors and market participants Consistent, relevant and efficient EU-wide stress test What? 124 consolidated banks, 28 jurisdictions, 80% of total assets in the EU Cooperation Cooperation amongst supervisors and other involved parties 5

6 The suite of stress tests Type Aim Use Firms Supervisors Macro prudential authorities Firms own stress testing Micro prudential stress tests under pillars 1 and 2 Macro economic stress tests; System-wide macro prudential stress tests Risk analysis bank-by-bank information on risks and vulnerabilities Aggregated information on systemic risks and vulnerabilities Banks risk management Supervisory analysis; early warning tools Systemic stability, economic policy implications System-wide microprudential stress tests Hybrid in methods and aims; multiple use Focused on sample bottom up stress test Focused on sample top down stress tests Focused on comparability 6

7 Agenda 1 Context 2 Key features 3 Quantification of different risk types 4 Process and time line 7

8 Overview key features (1/2) Consolidation Highest level of consolidation Perimeter of the banking group as defined by the CRD/CRR Scenario Common baseline and adverse macro-economic scenarios and stressed market parameters for positions sensitive to a change of market prices CAs may develop additional sensitivities to incorporate country specific features Time-horizon and reference date Consolidated year-end 2013 figures Scenarios applied over a period of three years (from 2014 to 2016) Capital CET1, with transitional arrangements; CoCos reported if trigger is above the bank s CET1 ratio in the adverse scenario CAs may, in addition, assess the impact of the stress test on other yardsticks Prudential filters are discretion of CAs; conditions for common approach assessed 8

9 Overview key features (2/2) Hurdle rate 8% Common Equity Tier 1 ratio for the baseline scenario 5.5% Common Equity Tier 1 ratio for the adverse scenario CA may calibrate possible supervisory measures based on a ladder of intervention points and set higher hurdle rates Static balance sheet Zero growth assumption for baseline and adverse scenario and same business mix Assets and liabilities that mature replaced with similar financial instruments in terms of type, credit quality and original maturity; no workout of defaulted assets Exemption due to mandatory restructuring plans announced before reference date Risk coverage Solvency stress test credit risk, market risk, sovereign risk, securitisation, cost of funding, non-interest income and costs, operational risk; no liquidity stress test CAs may include additional risks but results reported under common approach Process EBA responsible for common methodology, templates, disclosure Competent authorities responsible for quality assurance and reaction function Outcome of AQR may inform starting point 9

10 Agenda 1 Context 2 Key features 3 Quantification of different risk types 4 Process and time line 10

11 Overview credit risk methodology Scope All assets in the banking book which are exposed to credit risk including counterparty credit risk, on and off-balance sheet positions, IRB and STA portfolios Methodology also applied to IRC Methodology Stressed point-in-time PD and point-in-time LGD for provisioning Potential rating migration and stressed IRB regulatory parameters for RWA Impact on P&L Expected loss based on point-in-time parameters used to calculate credit risk losses on performing portfolio Additional losses on defaulted portfolio based on worsening LGDs and portfolio characteristics Impact of RWA Stressed RWA in IRB and STA, including RWA for defaulted assets and IRB excess or shortfall RWA floored at 2013 levels 11

12 Overview market risk methodology Scope All financial assets and liabilities assessed at fair value (positions in HfT, AfS and designated at fair value through profit and loss portfolios) Hedge accounting portfolios Securitisations held at fair value Methodology Simplified: bank-specific reduction in NTI based on historical variation Comprehensive: full revaluation of positions based on market risk parameters CVA haircuts for OTC derivatives Default of largest counterparty (excl. CCP, market infrastructure, sovereign) Impact on P&L Reduction in NTI or other comprehensive income impact due to fair value variation; loss from default of largest counterparty; loss from CVA haircuts Valuation adjustments on debt securities and P&L gains resulting from credit spread widening of own liabilities cannot be taken into account Impact of RWA RWA increase for VaR, SVaR and CRM capital charges due to predefined assumptions (constant RWA for banks using simplified approach; VaR replaced by SVaR for banks using comprehensive approach, fixed scaling for CRM) IRC and CVA increase due to worsened risk parameters 12

13 Overview securitisation risk methodology Scope Securitisation and re-securitisation positions assessed at fair value (HfT, AfS, designated at fair value through profit and loss) and amortised cost positions Methodology Increase of RWA depending on risk profile of the positions (three risk buckets) Impairment estimates for positions not held for trading Application of market risk methodology for fair value positions Impact on P&L Impairments for securitisation positions not held for trading Mark-to-market treatment for positions at fair value in line with market risk methodology Impact of RWA RWA increase for all securitisation positions based on pre-defined risk buckets 13

14 Overview cost of funding and interest income Scope Interest bearing assets and liabilities Methodology Sensitivity analysis of the P&L effect for deterioration in wholesale funding markets and a significant increase in retail funding costs Banks own estimates but subject to constraints Asymmetric pass-through LTRO replaced with MRO Impact on P&L Increase of cost of funding partially mitigated by an increase in interest income Impact of RWA N/A 14

15 Overview sovereign risk methodology Scope Sovereign exposures (direct debt exposures as well as indirect exposures to central and local governments) Assessed at fair value (HfT, AfS, fair value through profit and loss) and amortised cost positions Methodology All fair value positions: application of market risk methodology for impact of changes in market prices Regulatory banking book positions: application of credit risk methodology for impairment estimates based on rating migration defined by ESRB/ECB Impact on P&L Direct P&L impact for positions accounted for at fair value (with AFS prudential filters phased out 20/40/60%) Further impairment estimates for regulatory banking book assets Impact of RWA RWA increase due to worsened risk parameters in IRB and STA 15

16 Agenda 1 Context 2 Key features 3 Quantification of different risk types 4 Process and time line 16

17 Overview responsibilities European Banking Authority European Systemic Risk Board European Commission 28 Nations, 28 National Supervisory Authorities and ECB Non-SSM National Competent Authorities SSM ECB, National Competent Authorities Common methodology, templates Data hub for final dissemination Common scenario (in cooperation with ECB, NCAs) Responsibility for the quality assurance Assessment of the reliability and robustness of banks assumptions, data, estimates and results Definition and communication of any additional sensitivities Supervisory reaction function Joint work and information sharing 124 banks in 2014 EU-wide stress test 20 Non-SSM banks 104 SSM banks Calculation of bottom-up stress test results 17

18 Tentative time line April May June July August September October Preparation Finalisation methodology, templates, scenario Calculation Advance data collection ST calculation by banks Iteration with banks Disclosure 29/04/14 Disclosure preparation Milestones Publication methodology, templates, scenario Workshop with banks Publication ECB benchmarks Submission first results to EBA via CAs EBA feedback on results to CAs Submission close-tofinal results to EBA Publication of results 18

19 Overview disclosure P&L Credit risk Main P&L items like net interest income, net trading income, impairments for financial assets and other comprehensive income Exposure, RWA, value adjustments and provisions, default and loss rates No disclosure of credit risk parameter Market risk Market risk position by main risk types Securitisation Securitisation exposure, RWA and impairments Sovereign Sovereign exposure by country, maturity and accounting treatment RWA RWA by risk type Capital Capital position, components and adequacy including stressed solvency ratios Capital restructuring 19

20 EUROPEAN BANKING AUTHORITY Tower 42, 25 Old Broad Street London EC2N 1HQ Tel: Fax: /2