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CFO Brief · Essay
From the 2027 stress-test number to the 2028 dividend — the MDA maths the CFO should be running now
The 2027 EBA EU-wide stress-test result does not sit in a vault. It feeds directly into the 2028-2030 P2G, which sets the Combined Buffer Requirement, which in turn defines the MDA trigger and the 2028 dividend envelope. For a Tier-1 European bank, every 50 bps of P2G compresses MDA distance by 50 bps at the adverse end-point — sometimes tipping the bank into a payout cap the Board has never modelled.
Audience: CFO, Head of Capital Management, Group Treasurer. This is a CFO-facing essay, not a technical note.
1. The chain of causality
The mechanics run in a fixed order. Each link is mechanical; each is supervisory-defined; each has a written public source (EBA methodology, CRD Article 141, ECB SREP guidance). But the order is rarely drawn on a single page — which is why the 2028 dividend decision is often taken before the 2027 result is fully digested.
1
Stress-test result
Adverse CET1 depletion 2027–2030
→
2
P2G anchor
Bucketed 0-125 / 125-250 / 250-375 bps
→
3
Combined Buffer Requirement
CCoB + CCyB + G-SII + SyRB
→
4
MDA trigger level
P1 + P2R + CBR = the hurdle
→
5
Distributable-profit constraint
Dividend cap · AT1 coupon risk
Every link is defined in supervisory text. The P2G bucketing is the only one where the JST exercises judgement, and that judgement is bounded by the EBA outcome: a bank with an adverse CET1 depletion of 500 bps does not receive a P2G in the 0-125 bp bucket, regardless of how friendly the JST dialogue.
2. Worked example — Tier-1 European bank
The figures below are the illustrative example we use in CFO briefings. The starting CET1 (13.5%) and adverse depletion (to 8.6%) are in line with peer-median sector outcomes from the EBA 2023 and 2025 EU-wide stress tests (see our public dataset). The P2G bucket (150 bps, moderate) is illustrative; JST decisions vary by bank.
Assumptions
| Starting CET1 (T-0) | 13.5% |
| Adverse CET1 end-point | 8.6% |
| Depletion | −490 bps |
| Assumed P2G bucket (illustrative) | 150 bps · moderate |
Source: peer-median starting CET1 and adverse depletion from EBA 2023 & 2025 transparency. P2G bucket illustrative, JST-defined in practice.
MDA trigger computation
| Pillar 1 | 4.5% |
| Pillar 2 Requirement (P2R) | 1.8% |
| Capital Conservation Buffer (CCoB) | 2.5% |
| Countercyclical Buffer (CCyB) | 1.0% |
| G-SII buffer | 1.5% |
| Systemic Risk Buffer (SyRB) | 0.0% |
| MDA trigger | 11.3% |
Source: CRD Article 141, national buffer schedules (ECB, nationally-competent authorities). Illustrative G-SII of 1.5% aligned with mid-bucket G-SIBs.
MDA distance
At T-0 (start)
220 bps
13.5% − 11.3%
At adverse end-point
−270 bps
8.6% − 11.3%
At adverse, the bank is below the MDA trigger by 270 bps. Under CRD Article 141, distributable-profit caps apply progressively as the bank moves down the Combined Buffer Requirement.
Dividend-cap implications
The MDA payout cap steps down by quartile of CBR utilisation. The mapping below is directly from CRD Article 141(2).
| CET1 position inside the CBR | Maximum distribution (% of distributable profit) |
|---|
| Above CBR top (fully compliant) | No MDA cap |
| Top quartile of CBR (4th quartile) | 60% |
| Third quartile | 40% |
| Second quartile | 20% |
| Bottom quartile (lowest) | 0% |
Source: CRD Article 141(2) Maximum Distributable Amount. The “CBR” is the 4.5%-of-RWA buffer stack above Pillar 1 + P2R.
3. The 50-bp sensitivity
For every 50 bps of incremental P2G, the distance-to-MDA at adverse compresses by 50 bps, potentially tipping the bank into a 40% or 20% payout cap. The table below runs the same Tier-1 example across four P2G buckets.
| Assumed P2G |
CET1 hurdle = P1 + P2R + CBR + P2G |
MDA distance at adverse (8.6%) |
Indicative payout cap |
| 100 bps |
11.3% + 1.0% = 12.3% |
−370 bps |
0% |
| 150 bps (illustrative) |
11.3% + 1.5% = 12.8% |
−420 bps |
0% |
| 200 bps |
11.3% + 2.0% = 13.3% |
−470 bps |
0% |
| 250 bps |
11.3% + 2.5% = 13.8% |
−520 bps |
0% · AT1 coupon risk |
Note: at adverse, the bank is below CBR in every P2G bucket in this example — the baseline payout headroom is what matters for the actual 2028 dividend, but the adverse shows the MB buffer logic and the Board's capital-plan resilience. P2G is additive to the CET1 hurdle for supervisory dialogue, even though it is not formally inside the CBR.
The 50-bp lesson: a P2G outcome 50 bps worse than expected does not compress dividend capacity in the baseline — it compresses the management buffer headroom over the supervisory hurdle, which is what the Board actually trades against the payout. A bank that targets a 100-bp MB buffer above P1 + P2R + CBR + P2G has lost half of it at 250 bps vs the 150-bp anchor.
4. AT1 coupon-cancellation risk
Additional Tier 1 coupon cancellation is triggered under CRR Article 141a when the bank's distributable items are constrained or when the MDA cap applies. In the same illustrative example, at a P2G of 250 bps, AT1 coupon cancellation becomes a live supervisory question — not a Board scenario, an EBA conversation.
The mechanics: once CET1 falls inside the CBR under adverse, the bank is required to apply the MDA cap on distributions. AT1 coupons are included in the distribution definition. A 0% MDA outcome at adverse means no AT1 coupon can be paid from distributable profits — even if the bank has cash, even if investors expect payment.
The JST will not typically intervene pre-emptively on AT1 coupons in an adverse scenario, but will ask the bank to explain how its capital plan protects coupon capacity through the stress horizon. A bank that cannot answer that — with a written AT1 coupon-capacity note signed by the CFO — is in a difficult conversation.
The AT1 conversation: CRR Art. 141a mechanics are non-negotiable, but the dialogue with the JST is the decision point. A CFO who walks in with a modelled AT1 capacity note — scenario-by-scenario, coupon-by-coupon — is in a different conversation than one who walks in without.
5. What the CFO should be doing in 2026
The 2027 EBA EU-wide stress test is roughly 9-12 months away at the time of writing. Three concrete asks, sequenced.
1
Recalibrate the capital plan under the 150 / 200 / 250 bps bracketed P2G
Run three parallel capital plans, each under a different P2G assumption: central (150 bps), stretch (200 bps), adverse (250 bps). For each, map distributable-profit capacity, MB buffer headroom, AT1 coupon capacity. This is a 2026 exercise, not a post-2027 exercise — the dialogue in early 2028 will be shaped by what the CFO brought in 2026.
Owner: Head of Capital Management · Countersignature: CFO · Deadline: before the 2027 EBA template freeze.
2
Pressure-test the ICAAP adverse to be ≥ the EBA adverse
The JST reads both. A bank whose ICAAP adverse is materially less severe than the EBA adverse has a defence problem — the JST reads it as a weak internal challenger. The ICAAP adverse does not have to match the EBA, but it has to be defensibly as severe, with explicit documentation of where and why it differs.
Owner: Head of Stress Testing · Countersignature: CRO · Deadline: ICAAP 2027 cycle.
3
Produce an AT1 coupon-capacity note for the Board
A scenario-by-scenario note showing, under each P2G bucket and each stress severity, how much AT1 coupon the bank can pay from distributable items. 6-10 pages, signed by the CFO. This is the paper the Board needs to approve the capital-distribution policy for 2028; it is also the paper the JST will ask for if the P2G outcome surprises.
Owner: Group Treasurer · Countersignature: CFO · Deadline: before the 2028 AGM dividend announcement.