More appropriately, stress tests should not only place emphasis on solvency, but they should explore the impact of the assumed shock on bank liquidity, the implications of applying the bail-in tool, the funds needed to meet any demand on deposit guarantee funds, etc. We should focus on harmonizing processes, while models should be enriched with constrained judgement as is standard practice in macroeconomic forecasting.
5. Fifth, there is a need to widen the scope of regulation. A crucial challenge ahead is related to recent disintermediation and the development of “shadow” banking as an alternative means of financial intermediation. The CRR/CRDIV legal framework covers mainly the banking sector, yet financial activity and the financing of the euro-area economy have increasingly shifted to non-banks.