Most importantly, the banking union has to start with a clean slate. Thus, one of the biggest preparatory steps is the Comprehensive Assessment of those banks which will fall under European supervision. This Comprehensive Assessment consists of two elements: a backward-looking Asset Quality Review and a forward-looking stress test, which also applies to four Danish banks.
Forecasts can also be structured to take into account model and data uncertainty - for example by down-weighting changes in variables, such as the output gap, that are known to be poorly measured (Williams, 2004).