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Banking

Stress tests: Europe’s latest bank stress test fails to impress

Not testing hold-to-maturity books or liquidity risk diminishes credibility; Sterner tests conducted in private might be a better use of time

the first executive director of the European Banking Authority, Adam Farkas, former head of the Hungarian financial supervisory authority

"The success of the EBA will be key to enhancing the financial stability and soundness of financial institutions and ultimately to rebuilding the trust of citizens in the European financial system"

Adam Farkas, EBA

On being confirmed last month as the first executive director of the European Banking Authority, Adam Farkas, former head of the Hungarian financial supervisory authority, declared: “The success of the EBA will be key to enhancing the financial stability and soundness of financial institutions and ultimately to rebuilding the trust of citizens in the European financial system.” Farkas must know that the authority, founded in January this year, has not got off to an auspicious start. Last month, the EBA, the collective of European national bank regulatory bodies, began its latest stress test of banks accounting for 65% of total assets in the EU banking system. Results will be published in June and will gauge banks’ ability to withstand hypothetical stress events including, at worst, an economic contraction of 0.4%

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