Guideline 16. Institutions should evaluate the reliability of their capital planning based on stress test results [It should be noted that the assessment of stress tests is an important element of the ICAAP-SREP dialogue between institutions and supervisors (Element 4 of the dialogue as discussed in the CEBS Guidelines on the application of supervisory review process under Pillar 2 (GL03)).].

86. Stress test results should be used to assess the viability of its capital plan in adverse circumstances. To be effective for capital planning purposes, a range of scenarios should be considered including at least an adverse economic scenario that is severe but plausible, such as a severe economic downturn and/or a system-wide shock to liquidity. The stress should be firm-wide covering all relevant risk areas and material entities within the institution.

87. The stress tests should be forward-looking, cover the same period as the institution's ICAAP, be updated at least as regularly as the ICAAP and reflect all entities on which ICAAPs for the group are required. Selection of an appropriate time horizon for the forward-looking capital planning stress test will vary with the size and complexity of an institution, but all capital planning stress tests undertaken by institutions should cover a period of at least two years.