SREP & stress tests

Supervisory Review and Evaluation Process (SREP)

The SREP is used to verify and assess both an institution’s risk situation/controls and the associated adequacy of its internally determined capital and liquidity (ICAAP and ILAAP). These are based on the EBA’s SREP guidelines. On-site inspections, the supervisory review of internal stress tests, and supervisory benchmarking of internal approaches constitute the main supervisory activities, the results of which are included in the SREP. Based on EBA guidelines, the SREP follows what is known as the “Pillar 1 plus” approach, in which the minimum requirements of Pillar 1 (pursuant to the CRD/CRR) are supplemented by institution-specific supervisory capital requirements covering risks not or not sufficiently taken into account in Pillar 1 (e.g. interest rate risk in the banking book) - so-called Pillar 2 requirements in accordance with §6c of the German Banking Act.

Supervisory stress tests

The individual Pillar 2 requirements determined within the SREP are supplemented by an individual Pillar 2 guidance in accordance with §6d of the German Banking Act. This Pillar 2 guidance is determined by the responsible supervisory authority on the basis of the results of annual supervisory stress tests. As a rule, the Pillar 2 guidance is based on the reduction of the institution's capitalisation when applying a macroeconomic downturn scenario.