Financial stability and macroprudential policy

Macroprudential stress tests

The macroprudential stress tests conducted by the Banco de España assess the Spanish banking system’s overall capacity to absorb potential economic and financial risks.

Some of their main characteristics are as follows:

  • The tests are conducted under a “top-down” methodological framework (FLESB or Forward Looking Exercise on Spanish Banks), in which standardised models developed by the Banco de España are applied to the granular data available through regulatory and supervisory reporting.
  • The tests include a baseline scenario and one or more adverse macroeconomic scenarios, which envisage a severe but plausible downturn in economic and financial activity.
  • They assess banks’ resilience in terms of solvency and liquidity, by projecting their balance sheets over a three-year horizon.
  • The tests cover significant institutions supervised by ECB Banking Supervision and less significant institutions under the direct supervision of the Banco de España.

The aggregate results are published every year in the Autumn Financial Stability Report.

The following figure shows the main elements of the solvency exercise:

The results of the 2021 stress tests show that overall, even under the adverse scenario, Spanish banks have adequate loss-absorbing capacity.

The charts show that the banks had a sound initial solvency position (a CET1 ratio of 12.7% in December 2020). Under the adverse scenario, despite having to contend with losses, they are able to maintain a CET1 ratio of 10.4%, thanks to the use of provisions and the generation of capital.

SOURCE: Banco de España.

a. The net effect of the positive (negative) flows is indicated by the figure above (below) the corresponding bar. The initial and final CET1 ratios are presented as "fully loaded". Other impacts include, the change in RWAs between 2020 and 2023 and the effect of the ICO guarantees. Aggregate results, including both institutions supervised directly by the SSM and by the Banco de España.

b. This variable includes net operating income in Spain and net income attributable to business abroad. Thus, the possilbe funds generated by the banking group as a whole are compared with the impairment losses in Spain (the focus of these exercises).

c. This variable shows the projection over the three years of the exercise of gross losses due to credit portfolio impairment for exposures in Spain and other type of losses (associated with the fixed-income portfolio, the management of foreclosures and the sovereign portfolio).

The stress tests also reveal significant differences among banks in terms of their initial solvency position, their response to the different scenarios and the challenges facing them in the current economic environment.

For more information on the results, see the Autumn 2021 Financial Stability Report File PDF: Opens in a new window (3 MB).