Forthcoming 2023 EBA Stress Test - Unique Scenario, Unique Results?

This commentary discusses the forthcoming stress test that is due to be published on July 28th by the European Banking Authority.

Key highlights include:

The European Banking Authority (EBA) is publishing on 28 July the results of its periodic stress test and in spite of the severity of this stress test, DBRS Morningstar notes that the banks' starting point is the strongest out of all the previous stress tests supported by a solid capitalisation position.

The 2023 EBA Stress Test assumptions in the adverse scenario are unique compared to previous EBA Stress Test scenarios, including a sharp GDP decline by country coupled with high inflation and high interest rates.

"We believe the singularity of the adverse scenario considered in this stress tress could lead to some unexpected results compared to the performance of banks in previous exercises," notes Pablo Manzano, Vice President, Global FIG at DBRS Morningstar. "Nevertheless, real data for 2023 so far shows that the assumptions included in the adverse scenarios are still far from materializing," notes Maria Jesus Parra, Vice President, Global FIG at DBRS Morningstar.