Banks relieved as EBA punts on dual-track stress tests

Hybrid approach for 2023 will see top-down models used to project net fee and commission income only

European banks breathed a sigh of relief last month after the European Banking Authority backed away from a long-mooted split structure for its 2023 stress tests, opting instead for a hybrid approach.

Reforms proposed by the EBA in 2020 would have divided the biennial stress test into two parts: a bottom-up leg, where banks use internal models to gauge how they would perform in pre-set stress scenarios; and a top-down leg, where supervisory models are used to assess these same shocks. The