EBA to Extend Stress Testing to Assess Impact of Strains in Non-Bank Financial Institutions, Including Crypto Entities
The European Banking Authority (EBA) is set to implement additional measures to evaluate the potential impact of strains in non-bank financial institutions (NBFIs), including those in the cryptocurrency sector, on traditional banks. This initiative is driven by concerns over contagion and aims to enhance the understanding of interconnections between banks and other financial entities.
As a pivotal entity ensuring the orderly functioning and integrity of financial markets in the European Union (EU), the EBA conducts biennial stress tests on European lenders. These tests assess the balance sheet exposures of banks to non-banks and contribute to the overall evaluation of systemic risk in the EU financial system. The EU-wide stress tests are conducted in collaboration with the European Systemic Risk Board (ESRB) and the Financial Stability Board.
The move to include assessments of non-bank financial institutions, including those in the cryptocurrency space, is a response to the evolving financial landscape and the need to comprehensively understand potential risks and linkages within the broader financial system. The EBA’s stress tests serve as a supervisory tool, providing insights into the resilience of financial institutions to adverse market developments and informing supervisory decisions.
In 2023, the EBA conducted stress tests involving 70 banks from 16 EU and European Economic Area (EEA) countries, representing a significant portion of EU banks’ total assets. The transparency and detailed results of these stress tests contribute to the Pillar 2 assessment of banks and aid in the overall risk assessment of the EU financial system.
The transparency templates for the 2023 EU-wide stress test include detailed results,
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