EBA eyes top-down stress test for credit risk

European version of CCAR is off the table, but more projections are likely to be modelled by regulator

European Banking Authority is based in Europlaza Tower, Paris
Europlaza Tower in Paris, home to the EBA
Photo: 11h45_Paris La Defense

The guarded relief that Europe’s bankers felt when the industry regulator discarded plans to use a controversial dual structure for its 2023 stress test may prove to be premature.

The European Banking Authority has set its sights on a new model for credit risk – one that would use the regulator’s own formulas in the stress test, rather than allowing banks to use their internal projections.

This top-down model is part of the regulator’s vision for its “hybrid” approach to testing European Union

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