The European Union conducts coordinated stress tests across its banking sector through the European Banking Authority (EBA), working alongside the European Central Bank (ECB) and national supervisors.
The European Constrained Bottom-Up Model
[EBA Publishes Scenarios & Rules] ---> Banks Compute Internal Projections ---> ECB Audits and Adjusts Models
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[Publish Validated Results Transparantly] <--- SREP Pillar 2 Capital Add-ons Enforced <---+

The EBA framework uses a constrained bottom-up methodology. Banks run the common macro scenarios through their internal models, but must follow strict, standardized rules and templates defined by the EBA to prevent manipulation. The results are audited by the ECB and used to calculate custom Pillar 2 capital add-ons during the annual Supervisory Review and Evaluation Process (SREP).
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