Euro banks get ready for round of stress testing
THE EUROPEAN Central Bank (ECB) laid out more of the terms of its stress tests yesterday.
ECB vice president Vitor Constancio said that the tests would provide “total transparency”.
He said that there will be “no more doubts about European banks”, which he said are crucial to fund an economic recovery in the Eurozone.
Constancio added that the tests will be “very demanding and very rigorous,” with a 5.5 per cent core capital threshold for the adverse scenario in the assessments. This means that no bank’s most liquid capital should drop below this level during a simulated crisis.
This is one percentage point higher than the regulatory requirement in the European Union.
There will be an eight per cent tier one capital threshold for the less trying baseline scenarios conducted by the central bank.
The tests will also look into the least liquid and difficult to price assets held by the banks in an attempt to value them.
The scenarios for the stress tests are still being finalised by the ECB, but will be sent to banks by the end of April this year.
The ECB takes on responsibility for supervising banks in the currency bloc in November, a major part of the development of the region’s banking union.