City critics blasted the test results published in July, which found 90 per cent of European banks were able to survive another crisis, but did not use a scenario in which governments defaulted on their debt.
“We have to acknowledge we did not manage to reassure markets on the solidity of European banks, especially due to the treatment of sovereign exposures,” EBA chairman Andrea Enria told an EU parliamentary committee.
Syed Kamall, a Conservative MEP for London, said the EBA had wildly underestimated sovereign debt risks.
“While the markets were warning of a 50 per cent haircut for Greek debt, it was wrong of the EBA to only assume a write down of 15 per cent,” he told City A.M.
“The EBA may need to go back to the drawing board and take a more realistic view of banks’ exposure to sovereign debt if we are to have any real idea on the health of banks across the European Union.”