Q&A: EUROPEAN BANK STRESS TESTS
Q.How will Europe stress test its banks?
A.Originally, EU regulators planned to test just 25 large, cross-border banks, including Germany’s Deutsche Bank and Commerzbank, France’s BNP Paribas and Credit Agricole, and Britain’s Royal Bank of Scotland, HSBC, Barclays and Lloyds. Now they’re expected to cover banks holding about half the banking assets in each country. The expanded tests will include many or most of Germany’s landesbanken or regional banks, and many of Spain’s 45 cajas or savings banks and a host of Irish banks.
Q.how will these tests work in practice?
A.National supervisors, such as Germany’s Bafin, will carry out the tests, led by the London-based Committee of European Banking Supervisors. They will simulate how banks cope with financial pressure on loans and other assets in a worsening recession, and on the strength of their Tier 1 capital.
Q.when will results be out and what will they show?
A.European leaders have pledged to publish results by the end of July, with no serious problems expected to be found as banks have strengthened themselves since the crisis of 2007-2009.
Q.will the results reassure markets?
A.Earlier tests didn’t help much, but these will echo stress tests undertaken in the US during the crisis which did assuage some fears.