FRM Part I · FRM Exam Part I · Stress Testing
Under the EBA EU-wide stress test methodology, which feature is most characteristic of how the exercise is run?
The EBA exercise relies on a common methodology and scenarios provided by supervisors, with banks making constrained bottom-up projections under a static balance sheet assumption. Bank-level results are published for market discipline. It does not let banks freely alter their business mix or assume new capital raises.
- ABanks run the exercise using their own internal models and scenarios with no common constraints, and results are never published
- BBanks project results using a common methodology and supervisor-provided scenarios, with a static balance sheet assumption, and results are disclosed bank by bankCorrect
- COnly the supervisor runs the models, and banks submit no data
- DThe test assumes banks can freely change their business mix and raise capital in response to the shock
Explanation
The EBA stress test uses a common methodology, constrained bottom-up projections by banks, and scenarios provided by the authorities, with a static balance sheet assumption. Results are published at bank level to promote market discipline. Dynamic balance sheet and management actions are generally not allowed.
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