The Bundesbank and the Federal Financial Supervisory Authority (BaFin) conduct regular prudential stress tests to assess institutions’ resilience to a deterioration in economic conditions. Amongst other things, these stress tests are a source of information for setting the Pillar 2 capital guidance which supervisors expect institutions to achieve over the long term if they are to be in a position to withstand stress situations.

The expert panel on less significant institutions (LSI) stress tests was established by the Bundesbank and BaFin ahead of the 2017 low interest rate survey as a forum for close dialogue between banking supervisors and the banking industry on the design of prudential stress tests for small and medium-sized credit institutions. One of the panel’s talking points is the extent to which institutions are in a position to operationalise the calculation requirements defined by supervisors. The panel also regularly discusses and evaluates the insights gained from prudential stress tests and the associated surveys (above all on profitability in a low interest rate setting). Besides the Bundesbank and BaFin, panel members include representatives from banking associations and computer centres as well as a number of representatives from credit institutions.