09 MAR 2011
European regulators have weakened important parts of stress tests for banks, which were created to increase investor confidence in the sector.
By Ben Harrington | The Telegraph
German newspaper Handelsblatt published the new data points for the tests designed by the European Banking Authority (EBA), whose chairman, Andrea Enria, recently said that he was determined to make the stress tests more credible and use them to encourage widespread injection of fresh capital into Europe’s weaker banks.
The weakening of the stress test comes despite widespread criticism of a similar exercise last year, which was seen by financial markets as too soft on the banking sector.
Indeed, some of the scenarios under which bank balance sheets will be examined are less threatening than the tests that failed to gain investor credibility last year.
According to reports, the new stress test will model the impact of a 15pc fall in stock markets on banks. This is way below the figures used in the 2010 test, with no obvious toughening of other key parameters.
Meanwhile, macroeconomic stresses – modelling for a 0.5pc shrinkage of eurozone gross domestic product this year and 0.2pc next year – are less tough than a year ago.
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