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EU-wide stress testing exercise 2011

The European Banking Authority (EBA), in cooperation with the European Systemic Risk Board (ESRB) and National Supervisory Authorities, conducted an EU-wide stress tests in a bottom-up fashion. This EU-wide exercise aims at assessing the resilience of financial institutions to adverse market developments, as well as to contribute to the overall assessment of systemic risk in the EU financial system.

The stress tests were carried out using consistent methodologies, scenarios and key assumptions developed by the EBA in cooperation with the European Systemic Risk Board ESRB, the European Central Bank (ECB) and the EU Commission. The assumptions and methodology were established to assess banks’ capital adequacy against a 5% Core Tier 1 capital benchmark. The adverse stress test scenario was set by the ECB and covers a two-year time horizon (2011-2012). The stress test has been carried out using a static balance sheet assumption as at December 2010. The stress test does not take into account future business strategies and management actions and is not a forecast banks’ results.

In the Portuguese case, the stress test exercise was conducted for the four largest banking groups, involving also the banks’ employees pension funds. These banking groups accounted for almost two thirds of total assets of the Portuguese banking system in 2010. Note that Banco Santander Totta, which accounts for 8.5 percent of banking system’s total assets, was not included. Rather, as a subsidiary of Banco Santander, it participated in the stress test exercise conducted by Banco de España, given that the EU-wide exercise entailed banking groups to be tested on the highest consolidated level. Therefore, overall, around 74 percent of the Portuguese banking system was covered in the exercise.

Following completion of the EU-wide stress test, the results determine that all four Portuguese banks meet the capital benchmark set out for the purpose of the stress test.