Overview EU-wide Stress Test 2014

1. Overview EU-wide Stress Test 2014 Mario Quagliariello – Head of the Risk Analysis Unit 24/07/2014 - PRUEBAS DE ESTRÉS - La Visión del Regulador y el Impacto en la Banca JORNADA DEL CLUB DE GESTIÓN DE RIESGOS - Madrid

2. Agenda • Context • Key features • Process and timeline 1 2 3

3. It's a long way to the ST … It's a long way to go… • EU-widestresstest 2011 • EU-widerecapitali-sation • AQRs • EU-widestress test 2014 Pre-emptive capital raising Credit sensitivities Disclosure (capital and sovereign) 9% after sovereign buffer EUR 204bn capital strengthening CT1 ratio of 11.7% comparable to US EU CT1 sufficient if RWA can be trusted EBA recommendation Common definition of NPL and forbearance CAs responsibility PIT assessment of capital, with minimum threshold Forward looking assessment and reaction function Significant frontloading • RWA consistency Ongoing, leading to supervisory consistency, transparency and benchmarking

4. Capital strengthening: from the EBA recap exercise to “frontloading” ahead of stress test • T1 ratio excluding hybrid instruments after the EBA’s 2011 Recommendation reached 11.6% December 2013 (from 9.2% in Dec-2011). • Capital offerings continued in Q4 2013 and first half of 2014, both common equity and hybrids. • Issuance of equity has allowed the cleaning of balance sheets (additional provisions) and contributed to strengthening banks, with completed and announced deals since July 2013 amounting to EUR 45 billion (SSM banks - 49 banks out of the 128). • AT1 CoCosissuance (EU banks) around EUR 22bn during 2014 (as of 27 May). • 19 AT1 offerings of 10 EU banks in Q2 2014, compared to 8 offerings in total in 2013. Tier 1 ratio – excluding hybrids (weighted average, 55 EU banks, source: KRI, RAR) Total issuance of AT1 CoCos by EU banks in 2014 (as of 27 May, billion EUR, 10 EU banks, Source: Bloomberg, EBA calculations)

5. De-risking, deleveraging and cleaning of balance sheets Total assets and Risk-weighted assets – EUR tn, and specific allowances for loans (source: Risk Dashboard) • European banks have accomplished significant adjustments on the asset side by • cutting risky assets (de-risking); • shrinking their balance sheets (deleveraging); • cleaning balance-sheets (loan sales and increasing provisioning). • The adjustment accelerated towards the end of 2013 (cut-off date for the AQR and the stress test). Banks have been frontloading impairments: additional provisioning of EUR 25bn between Jun2013 and Dec2013. Also the recent increase in NPLs might to some extent reflect the new EBA definitions, contributing to a more reliable picture. • Positive developments, but no room for complacency. The AQR has to assess the reliability of balance sheets and banks may end up needing additional capital. Banks and supervisors need to be prepared and ready to take actions as a result of these exercises.

6. Agenda • Context • Key features • Process and time line 1 2 3

7. Who does what European Banking Authority • Common methodology, templates • Data hub for final dissemination European Systemic Risk BoardEuropean Commission • Common scenario (in cooperation with ECB, NCAs) Joint work and information sharing 28 Nations, 28 National Supervisory Authorities and ECB • Responsibility for the quality assurance • Assessment of the reliability and robustness of banks’ assumptions, data, estimates and results • Definition and communication of any additional sensitivities • Supervisory reaction function Non-SSMNational Competent Authorities SSM ECB, National Competent Authorities 124 banks in 2014 EU-wide stress test • Calculation of bottom-up stress test results 20 Non-SSM banks 104 SSM banks

8. What drives the EBA stress test methodology Why an EU-wide stress test? Comparable and transparent identification of potential risks across the entire EU Tools • Comprehensive, consistentand relevant scenario • Constrained bottom-up methodology (key features, risk quantification, templates for data collection) • Benchmarks Transparency • Detailed disclosure to inform supervisors and market participants • Cooperation amongst supervisors and other involved parties Cooperation

9. Overview key features (1/2)

10. Overview key features (2/2)

11. Overview disclosure: 9 templates, 12k data points ~130 ~6,500 ~40 ~50 ~4,930 ~50 ~310

12. Agenda • Context • Key features • Process and time line 1 2 3

13. Tentative time line April May June July August September October Prepa-ration Finalisation methodology, templates, scenario Advance data collection Calculation ST calculation by banks Iteration with banks Disclosure Disclosure preparation 29/04/14 Milestones Publication methodology, templates, scenario Workshop with banks Submission first results to EBA via CAs EBA feedback on results to CAs Publication of results Publication ECB benchmarks Submission close-to-final results to EBA

14. Process is ongoing and on track (1/2) • The publication of the stress test methodology and scenarios took place on 29 April 2014. • An EBA “Q&A” process is in place to ensure immediate support to banks and supervisors. • We have received more than 1000 questions from banks and published on the EBA extranet. • The EBA QA team is liaising with the ECB as well as NCAs for more complex or controversial issues. • Banks have submitted the data for the advance data collection and preliminary results. • The EBA has run statistical quality checks and provided feedback to NCAs • The EBA distributed benchmarks on the stress test starting point in June to NCAs as originally planned and currently working on “deltas”. • Benchmarks to be used as part of the quality assurance process NCAs and ECB are carrying out

15. Process is ongoing and on track (2/2) • The EBA is currently discussing details of communication in liaison with SSM colleagues as well as non SSM countries. • Including disclosure of additional national sensitivities, and • Stress test outcome for subsidiaries • Possible additional yardsticks/metrics to be disclosed • Interaction with banks • EBA is facilitating the cooperation and coordination between home and host authorities in the stress test as well as in the AQR • Quality assurance and join-up of AQR and ST,led by competent authorities, are key for the success of the exercise.