Stress testing is a tool used to assess the resilience of an institution to extreme yet plausible shocks to the macroeconomy and financial markets. Stress tests are part of the financial stability and risk management toolkit used for detecting vulnerabilities.

The European Banking Authority (EBA) is required, in cooperation with the European Systemic Risk Board (ESRB), to initiate and coordinate EU-wide stress tests to assess the resilience of financial institutions to adverse market developments. The EBA was established by Regulation (EC) No. 1093/2010 of the European Parliament and of the Council of 24 November 2010. The EBA has officially come into being as of 1 January 2011 and has taken over all existing and ongoing tasks and responsibilities from its predecessor the Committee of European Banking Supervisors (CEBS).

Building on experience of two previous EU-wide stress tests undertaken by the CEBS, the EBA conducts stress tests on a wide sample of banks. This exercise is undertaken in coordination with national supervisory authorities, the ESRB, the ECB and the European Commission.

CEBS 2010 EU-wide stress testing exercise

EBA 2011 EU-wide stress testing exercise