Stress Testing

The current framework stress testing banks’ solvency ratios covers Luxembourg banks at three levels:

1. EU-wide stress test coordinated by the EBA on a biennial basis (no Luxembourg bank covered in the last financial year 2023, however several subsidiaries of Luxembourg banks with head office in another EU country have been indirectly covered);
2. EU-wide stress test performed by the ECB on a biennial basis, replicating the EBA Stress test, covering those Significant Institutions (SI) directly supervised by the ECB which are not represented in the EBA sample (i.e. three significant institutions incorporated in Luxembourg and several subsidiaries of Luxembourg banks with head office in another EU country in the last financial year 2023);
3. CSSF solvency stress test on an annual basis.

One of the responsibilities of the European Banking Authority (EBA) is to ensure the orderly functioning and integrity of financial markets and the stability of the financial system in the EU. To this end, the EBA is mandated to monitor and assess market developments as well as to identify trends, potential risks and vulnerabilities stemming from the micro-prudential level.

One of the primary supervisory tools to conduct such an analysis is the EU-wide stress test exercise. The EBA Regulation gives the EBA powers to initiate and coordinate the EU-wide stress tests, in cooperation with the European Systemic Risk Board (ESRB). The aim of such tests is to assess the resilience of financial institutions to adverse market developments, as well as to contribute to the overall assessment of systemic risk in the EU financial system.

The EBA’s EU-wide stress tests are conducted in a bottom-up fashion, using consistent methodologies, scenarios and key assumptions developed in cooperation with the ESRB, the European Central Bank (ECB) and the European Commission (EC).

On 28 July 2023, the EBA published the results of the EU-wide Stress Test covering 70 banks. There has been no Luxembourg bank directly covered, however several Luxembourg subsidiaries of banks with head office in another EU country have been indirectly covered.

At the same date, the ECB published a presentation of the EU-wide Stress Test results at SSM level. 57 banks from the Eurozone were part of the stress test coordinated by EBA, as well as 41 significant institutions directly supervised by the ECB, of which three significant institutions incorporated in Luxembourg.

On 30 July 2021, the EBA published the results of the EU-wide Stress Test covering 50 banks. There has been no Luxembourg bank directly covered, however several Luxembourg subsidiaries of banks with head office in another EU country have been indirectly covered.

At the same date, the ECB published a presentation of the EU-wide Stress Test results at SSM level. 38 banks from the Eurozone were part of the stress test coordinated by EBA, as well as 51 significant institutions directly supervised by the ECB, of which five significant institutions incorporated in Luxembourg.

In the context of the COVID-19 (Coronavirus) outbreak and its global spread since February, the European Banking Authority has decided to postpone the EU-wide stress test to 2021 as a measure to alleviate the immediate operational burden for banks at this challenging juncture.

Please refer to EBA website under chapter “EU-wide stress testing” for further information.

On 2 November 2018, the EBA published the results of the EU-wide Stress Test covering 48 banks. There has been no Luxembourg bank directly covered, however several Luxembourg subsidiaries of banks with head office in another EU country have been indirectly covered.

The ECB published a presentation of the EU-wide Stress Test results at SSM level on 1 February 2019. 33 banks from the Eurozone were part of the stress test coordinated by EBA, as well as 54 significant institutions directly supervised by the ECB, of which 5 significant institutions incorporated in Luxembourg.

On 29 July 2016, the EBA published the results of the 2016 EU-wide Stress Test. There has been no Luxembourg bank directly covered, however several Luxembourg subsidiaries of banks with head office in another EU country have been indirectly covered.

The EBA published additional information on how the results of the 2016 EU-wide Stress Test will be used in the Supervisory Review and Evaluation Process (SREP).

Please refer to CSSF press release 14/56.

Please refer to EBA website under chapter “EU-wide stress testing” for further information regarding stress tests performed before 2014.