The EBA (European Banking Authority) is an agency of the EU that has regulatory functions, and it is tasked with the regulation, testing, and observance of all European banks. Other important duties also include conduct regularly scheduled stress testing procedures to ensure the stability and transparency of the EU banks’ financial systems. The importance and presence of the EBA are so significant, that it can overrule any governmental regulations of countries that have failed to properly evaluate their banks.
The Equalizer Authority
In addition to making sure that EU banks are all functioning properly, the EBA’s regulatory functions also serve as an equalizer for fair competition throughout the entire European Union. Preserving competitive advantage happens through the prevention of “bottom races”, especially in countries that have much less regulation on their banking systems – this is made possible by upholding a higher EU personal area network standard.
Stress Testing to Make Sure Things Won’t Go Wrong in the Future
An economic crisis in financial terms is an event that can destabilize an entire banking system. Simple financial projections are not enough to calculate the damage that a financial system can go through, and this is why EBA conducts proper stress testing. Usually, the way this is done is by introducing hypothetical scenarios to a specific financial instrument of the bank, to see how the institution will cope with crisis-level conditions.
Some of those scenarios will include conditions such as: what will happen if oil prices rise by %, what will happen if the unemployment rate rises to a %, what happens if GDP falls by %, etc. Those conditions can be calculated based on a general projection since the establishment of the bank itself or even by year. Apart from the financial instruments, EBA can also test payment and settlement systems, institution infrastructure, and many other elements.
Things are Changing for the EBA
Initially, when the European Banking Authority was established, its headquarters were situated in London, UK; however, the situation today is much different. BREXIT happened, and as the United Kingdom has begun procedures to exit the European Union, all associations headquartered there will need to move – hence, the EBA’s new HQ will be located in Paris, France.