BoE and EBA diverge on stress tests

Author: Lizzie Meager | Published: 6 Nov 2015

In recent weeks both the Bank of England (BoE) and the European Banking Authority (EBA) have reaffirmed their position on stress testing, revealing two increasingly different models.

The BoE’s new process will be made up of two parts. First, the annual cycle – which it has done since 2013 and is undertaking at the moment – and a new, biennial exploratory scenario, which will look further afield for new developments and risks that cannot be directly linked to the natural economic cycle.

"So every other year they’ll fantasise a bit more, really thinking about potential leftfield risks," said Simon Hills, executive director of prudential capital and risk and regulatory relationships at the British Bankers’ Association.

"Generally the market has welcomed further clarity around how the tests will work up until 2018," he added. "The need to look at more off-the-wall-type scenarios has been recognised."

Simon Brennan, DeloitteThe new procedure will...