City doubts over Euro stress test results
EUROPE’S much-vaunted stress tests have met with deep scepticism in the City ahead of the publication of the results today, with concerns rife that the test criteria will prove too lax to settle anxieties over the health of the region’s banks.
Market observers yesterday levelled criticism at the Committee of European Banking Supervisors for watering down the tests. Banks have been asked to forecast their extra funding needs under a range of scenarios, including a double dip recession and huge losses on government bonds.
Investors baulked at the likely lack of comprehensive disclosure on banks’ exposure to sovereign risk in the wake of the Greek crisis. They also said the use of core tier one capital ratios as a basis for the tests would have been better than the less rigorous standard of a tier one capital ratio of six per cent.
Officials from the affected countries have insisted that the majority of banks will pass the tests comfortably, with the exception of nationalised German lender Hypo Real Estate.
Emily Adderson, manager of the Henderson global financials fund, said the template for the tests looked over-simplified. “Most of the banks appear to have passed, but there’s a feeling that if you are going to have these tests, there needs to be an element of cleansing to them,” she said.
David Sayer, global head of banking at KPMG, added that the tests “need to be, and be seen to be, robust enough to expose obvious weaknesses in some banks’ positions – there will have to be some relative underperformers”.
Last night, officials were unclear on how much detail banks should be forced to give on their sovereign debt holdings.