Saturday 7 March 2015

EU stress tests: Banks must be able to survive shocks like house price slump

Published 29/04/2014 | 11:27

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BANKS here and across the EU will be tested for their ability to survive multiple shocks including a new plunge in house prices, a surge in unemployment and a sharp spike in borrowing costs in this year’s stress tests.

All of the main banks here – AIB, Bank of Ireland, Ulster Bank and Permanent TSB – will be looked at as part of the investigation into the 120 biggest, or most locally and regionally important lenders, across the euro area.

Any bank that can’t cope with that “adverse scenario” will have to come up with a plan to plug the hole in its finances after the stress tests are done later this year.

The European Banking Authority released details of the type of economic downturn it thinks banks must be able to show they can withstand today. 

Banks will be assessed for their ability to withstand a 21.2pc drop in house prices and a 14.7pc fall in commercial real-estate, a 19.2pc drop in stock prices over three years the European Banking Authority said in a statement.

Under the scenario banks would have to look at their ability to cope with a rise in average unemployed across the euro area to 13pc.

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