Sunday 17 December 2017

EU banks face proposals for reverse stress tests

Lenders in Europe face reverse stress tests under proposals from European regulators to toughen the scenarios used in examining banks’ financial stability.

The Committee of European Banking Supervisors said banks should carry out the reverse stress tests, where firms identify scenarios that may threaten their solvency.

The internal reviews would reduce the chance of a “false sense of security” arising from standard examinations, London-based CEBS said in a report today that proposed the first update to EU guidelines on the subject since 2006.

Ninety-one banks were examined last month on their resilience in the event of a shrinking economy and a drop in government bond values.

The tests were criticised for not being stringent enough because European banks were shown to need only €3.5bn of new capital, about a tenth of the lowest analyst estimate.

The European Savings Bank Group called for reverse tests to be removed from the recommendations, saying the additional costs of the tests “may not be justified through the marginal additional findings they might produce,” according to the report.

Dirk Smet, a spokesman for the ESBG in Brussels, couldn’t be immediately reached to comment.

Only Germany’s Hypo Real Estate Holding, Agricultural Bank of Greece and five Spanish savings banks lacked adequate reserves to maintain a Tier 1 capital ratio of at least 6pc under the worst-case scenarios, according to results of European stress tests published by CEBS on July 23.

Efstathia Bouli, spokeswoman for CEBS, couldn’t be reached to comment today.

CEBS’s role is to coordinate national banking authorities and make policy recommendations to the EU on regulation.


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