The 2011 EBA’s EU-wide stress test had the objective of assessing the resilience of a large sample of banks in the EU against an adverse but plausible scenario. The scenario assesses banks against deterioration from the baseline forecast in the main macroeconomic variables such as GDP, unemployment and house prices for instance, GDP would fall 4 percentage points from the baseline. The scenario includes sovereign stress, with haircuts applied to sovereign and bank exposures in the trading book and increased provisions for these exposures in the banking book. Changes in interest rates and sovereign spreads also affect the cost of funding for banks in the stress. The stress testing methodology, which was published by the EBA on March 18th, 2011 , entails a static balance-sheet assumption and also does not allow the banks to take actions to react to shock. The resilience of the banks is assessed against a benchmark defined with reference to the capital of the highest quality — Core Tier 1 (CT1) — set at 5% of risk-weighted assets (RWA). The stress test exercise is a general macroeconomic scenario across all countries in the EU. The results shed light on the sensitivities of the European banking sector to a general economic downturn and movements in external variables, such as interest rates, economic growth and unemployment. The stress test does not directly capture all possible outcomes of the current sovereign crisis, which is rightly being handled by relevant fiscal authorities, but the transparency of this exercise is designed to provide investors, analysts and other market participants with an informed view on the resilience of the EU banking sector. The adverse scenario has a significant impact on loss figures. The stress shows provisions of around EUR200bn in each of the two years, equivalent to the loss rates of 2009 repeated in two consecutive years. The high level of provisions is coupled with reduced profitability under the adverse scenario: both net interest income and pre-provision income are roughly one-third lower than the 2009 equivalent levels for the two years of the stress test exercise.