Banking

The stress tests carried out by the European authorities showed that the Spanish banking sector looks highly resilient to adverse scenarios, despite the fact that the scenario modelled for Spain was among the toughest in the eurozone. Nevertheless, transition towards an even more stringent regulatory environment in terms of capital adequacy suggests that Spanish banks will have to continue to bolster their own funds over the coming years.

The ECB’s climate stress tests slated for 2022 will differ from traditional stress tests in terms of governance, objective, methodology, scenarios and scope. Nevertheless, the ECB’s deep engagement with this issue suggests a high probability that climate risks will be integrated into conventional stress tests in the future.

In order to alleviate the pressure wrought by COVID-19 on the banking sector, regulators and supervisors permitted banks to utilise capital buffers prescribed under Basel III, including the so-called counter-cyclical buffer and the capital conservation buffer. Econometric analysis shows that the ‘stigma effect’ most likely explains banks’ hesitancy to take advantage of this flexibility.