Europe is assessing how 91 banks across 20 countries would cope with another economic downturn in an effort to restore confidence after Greece’s sovereign debt crisis hit markets and sparked fears the euro zone could unravel.
With banks exposed to major potential losses on Portuguese, Greek or Spanish government debt, the crisis has hurt confidence in big names such as Santander, and shut smaller lenders, especially in southern Europe, out of funding markets.
The Committee of European Banking Supervisors (CEBS), which is overseeing the stress tests, said results would be released on an aggregated and bank-by-bank basis from 1600 GMT on Friday.
“The intention is that it provides reassurance to investors... the test is helpful but I do not think it is a panacea for providing that boost of confidence that regulators and politicians are hoping for,” said Nick Brind, fund manager of the Hiscox Investment Management Income Fund.
“I do not think it is necessarily stringent, I do not think is transparent or that it will provide any more visibility.” The vast majority of banks are expected to pass and the aim is to pinpoint weak spots and force weaker banks to raise cash.
But Moody’s decision to cut Ireland’s credit rating on Monday and the collapse of Hungary’s deal with international lenders suggest that success with the stress tests will not spell the end of Europe’s debt problems. Europe wants to repeat the success of last year’s US stress tests, which were moderate but provided real data about possible losses and boosted stock markets. However, early splits within the 27-member European Union about how to model the tests and how much to divulge have undermined efforts.
EU officials have agreed the key criteria of the tests, but analysts now fear that they will not be consistently applied, with national regulators differing on what qualifies as core capital, for example.
