The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2020 Euromoney, a part of the Euromoney Institutional Investor PLC.
Opinion

EBA stress tests are past their sell by date

Stress test results are meant to reassure on bank resilience, but they no longer seem to address banks’ key risks.

Peter_Lee_banner_banking-780

The European Banking Authority (EBA) stress test results came and went at the start of November and nobody paid them much attention. Are they even worth the effort anymore?

This now looks like a test that the examiners – the EBA, the European Central Bank (ECB), national central banks – have designed for their charges to pass easily and which is chiefly intended to reassure investors what a wonderful job the examiners have done in forcing banks to hold larger amounts of higher quality capital to protect against a severe downturn.

The EBA says the adverse scenario for the 2018 test was more severe than for any previous such EU-wide exercise.

Maybe it is.

Investors can decide for themselves how dystopian is a cumulative fall in GDP over three years by 2.7%, with unemployment reaching 9.7% by 2020, and houses prices and commercial real-estate values falling by around 20%.

Not especially, would be our own view.

The test applied to the end-2017 balance sheets of 48 EU banks comprising 70% of total EU banking system assets. The headline is that from an aggregate starting point ratio of 14% fully loaded common equity tier 1 (CET1), the system would see its ratio fall to just 10.1%


You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree