A study on the EBA stress test results: influence of bank-, portfolio-, and country-level characteristics

J. Hernández (), J. Población (), N. Suárez () and J. Tarancón ()
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J. Hernández: Banco de España
J. Población: Banco de España
N. Suárez: Universidad Autónoma de Madrid
J. Tarancón: Banco de España

Journal of Banking Regulation, 2025, vol. 26, issue 3, No 7, 408-432

Abstract: Abstract This paper investigates the drivers of the change in the credit risk provisions at a portfolio level for banks that have been subject of the 2018 EBA stress tests. We perform a holistic review of the drivers of the three-year projections of credit losses. We define a model containing all the macroeconomic variables considered by the EBA approach. By adding a three-dimension set of explanatory variables, entity-, banking sector- and portfolio-level aspects, we verify that the published results show a relation with these features. Our results show that although EBA variables explain most part of credit risk provisions, bank-level variables, banking sector features, and the specific characteristics of the portfolio also play a role in explaining part of the provisions. The results also indicate the existence of complementary/substitution effects of both bank- and portfolio-level variables with the characteristics of the banking sector when explaining credit risk provisions.

Keywords: Stress tests; Credit risk; EBA; Bank and portfolio characteristics; Banking sector characteristics (search for similar items in EconPapers)
JEL-codes: G20 G21 G28 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1057/s41261-024-00268-5

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