Analysts were scathing about the European Banking Authority’s (EBA) first ever tests, keeping price recommendations unchanged and saying that the exercise was effectively useless as a tool for distinguishing between risky and sound banks.
Credit Suisse analysts called the tests a “missed opportunity”, adding “the market remains correct to be worried about funding and liquidity”.
In its analysis, Barclays Capital said: “The variation by bank is enormous… This kind of variation hurts the credibility of this exercise, in our view.”
There was also a concern that the tests unduly penalised investment banking operations versus retail and assumed that a future stress scenario would mimic 2008.
Investec wrote that in the tests’ earning assumptions “RBS was particularly disadvantaged”.
UBS adds: “The tests proved favourable for retail banks” and failed to adequately take into account the different nature of the current crisis.
Credit Suisse agreed: “Securitisation holdings are dealt with in a very penal fashion… [which] does not take account of the fact that the major stress period (2007-2009) is in the past, and is based on the US experience.”