Business World

Sunday 21 January 2018

'Doomsday scenario' to test Europe's banks

Pedestrians are reflected in the window of a foreign currency exchange store advertising its rates in Kiev, Ukraine. Stress tests will assess the strength of Europe's banking system and its ability to overcome real-world tensions like those in Ukraine.
Pedestrians are reflected in the window of a foreign currency exchange store advertising its rates in Kiev, Ukraine. Stress tests will assess the strength of Europe's banking system and its ability to overcome real-world tensions like those in Ukraine.

Sonia Sirletti and Jeff Black

The strength of Europe's banking system is about to be tested against a fictional doomsday scenario that includes a global bond rout and a currency crisis in central and eastern Europe.

The three-year outlook features "the most pertinent threats" to the stability of European Union banks and their potential impact on entire balance sheets, according to a draft European Banking Authority statement seen by Bloomberg News.

As the ECB prepares to take over supervision of about 130 euro-area lenders in November, policy makers have chosen to reflect real-world developments like the tensions over Ukraine in a bid for more credibility in the toughest stress tests to date.

"The negative impact of the shocks, which include also stress in the commercial real estate sector, as well as a foreign exchange shock in central and eastern Europe, is substantially global," the draft statement said.

(Bloomberg)

Irish Independent

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