The European Banking Authority (EBA) has been regularly performing stress testing exercises across the European Union since 2014. According to the EBA, the aim is to assess the resilience of EU banks against a common set of adverse economic developments and thereby identify potential risks, inform supervisory decisions and increase market discipline. The European Central Bank (ECB) and other European competent authorities support these exercises and use them for supervisory decisions such as the Pillar 2 Guidance (P2G), a recommendation on additional capital buffer for banks.
Stress testing: the challenges
The EBA EU-wide stress tests require European banks to fill out highly granular data sheets with approximately 200,000 data points. These sheets provide detailed information on the solvency of banks for the past, the present and – most importantly – the simulated future in the event of adverse shocks.
The main challenges for banks are:
- Short timelines to provide information to EBA and supervisors
- Achieving good data quality to pass validation checks from supervisors
- Complying with methodological EBA constraints not applied for internal bank simulations
- High level of effort, especially to set up solutions specifically for EBA stress tests
- Risk of negative simulation results
Our services and tools
KPMG supports banks in handling regulatory stress testing exercises front to back.
We support banks based on their needs by
- giving hands-on assistance throughout the complete chain from data gathering to filling sheets;
- providing strategic guidance based on KPMG’s many years of EBA stress test experience and supervisory insights; and/or
- simply helping banks increase their stress testing efficiency using our tools.
KPMG EBA/ECB Stress Testing Tool Suite
In recent years KPMG has developed a series of tools for our clients. These tools have already helped more than 20 European banking groups to conduct stress testing more efficiently and effectively. KPMG offers these tools for a competitive one-time fee including tool updates as well as tool support for the respective stress test season.
KPMG regularly asks clients for feedback to improve the Stress Testing Tool Suite. In the latest client survey, conducted after the 2023 stress test exercise, all participants said they were very or extremely satisfied with the tools they used.
NII Calculation Engine is a VBA-based tool which facilitates automated stress projection and population of the template CSV_NII_CALC
Benefits:
- Significant efficiency gains via centralized calculation and optimization at template level
- Optimized simulation results compliant with EBA methodology and constraints
- Usual savings of 30-40 person days
- Proven methodology from previous EBA/ECB stress tests adapted to latest requirements
- Enhanced transparency enables increased data quality and effective discussion with regulator
- Efficient NII driver analysis and reporting of results due to dynamic visualization function
Impairment Calculation Engine is a VBA-based tool which allows automated generation of ECB benchmarks and population of the template CSV_CR_SCEN
Benefits:
- Significant efficiency gains thanks to automatic processing of ECB credit risk path generator
- Automated approach and quality-assured transformation routine reduces potential errors
- Proven approach from previous EBA/ECB stress tests adapted to latest requirements
- Transparent mapping from ECB credit risk path generator to line items in CSV_CR_SCEN
- Detailed impact analysis between internal and benchmark parameters
- Using benchmark projections instead of internal projections results in savings of 30-40 person days
Quality Evaluator for Stress Testing Templates is a .Net software solution which allows automated validation of data consistency and compliance with EBA/ECB stress test guidelines and principles
Benefits:
- Data inconsistencies are quickly identified and can be mitigated before official submission; takes into account DQ approach and ECB’s STAR portal
- Checks defined by KPMG experts reveal cross-references within template and to other regulatory reports such as FINEP and COREP
- Decentralized application offering substantial benefits for partial submissions
- Time saved during consolidation due to high quality of data delivered
- Easy and fast comparison of two populated EBA templates to check for impact of changes made
- Available long before ECB’s STAR portal opens to support you in dry runs and smooth stress test execution
- Backed up by experience: more than 20 banking groups have applied KPMG's data quality checks for EBA/ECB stress test exercises since 2018; 12 banking groups applied the tool for LiST19
Population Tool for Stress Testing Templates is a VBA-based tool which allows efficient and automated data aggregation, population and versioning of EBA/ECB stress test templates
Benefits:
- Centralized data aggregation ensures transparently documented data sources, delivery format and aggregation logic – enabling proper knowledge transfer for future exercises
- Time efficiency due to high-performance, automated data aggregation and versioning feature
- Tool features based on experience from previous EBA/ECB stress test exercises
Data Quality Control is a VBA-based tool for the analysis of DQ reports produced by the ECB’s STAR portal.
Benefits:
- Clear presentation of STAR portal flags via color-coding of cells in the EBA template
- Storage and versioning of STAR portal reports and banks’ responses
- New tool developed based on KPMG’s extensive experience with STAR portal checks and data quality checks
Consulting services
In addition to our tools, we offer our European customers consultancy services for stress tests on a time- and material-based basis, to help them achieve greater transparency and effectively overcome challenges. Typical scenarios and project examples include:
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