Stress Tests : Hypothèses

17 April 2014 EBA/SSM stress test: The macroeconomic adverse scenario 1.Design of the adverse scenario The adverse macroeconomic scenario covers the horizon 2014-16. The aim of the exercise is to produce paths for macroeconomic and financial variables such as GDP growth, HICP inflation, unemployment, 1 interest rates and stock prices in terms of deviations from a given baseline. The note presents the outcome of the adverse scenario for some of the key macro-financial variables. The proposed adverse scenario reflects the systemic risks that are currently assessed by the ESRB General Board as representing the most pertinent threats to banking sector stability: (i) an increase in global bond yields amplified by an abrupt reversal in risk assessment, especially towards emerging market economies (EMEs), and pockets of market liquidity; (ii) a further deterioration of credit quality in countries with feeble demand, with weak fundamentals and still vulnerable banking sectors; (iii) stalling policy reforms jeopardising confidence in the sustainability of public finances; and (iv) the lack of 2 necessary bank balance sheet repair to maintain affordable market funding. In line with this ranking of risks, the scenario narrative takes as a starting point a rise in investor aversion to long-term fixed income securities which results in a generalised re-pricing of assets and related selloffs.