Analysts’ view: European banking stress tests

FRANKFURT (BestGrowthStock) – The Committee of European Banking Supervisors has named 91 banks taking part in financial stress tests and provided some, but not nearly all, details of the planned tests as it seeks to restore confidence in the sector.

Following is a selection of views from analysts:


“The good news is twofold. There are 91 banks, a very wide scope, including (Spanish) cajas and (German) landesbanken. That will give not a full but a wide picture of the European banking system. That’s good news one.

Good news two is that it will be published on a bank-by-bank basis as well and you will have the ability to see each name.

The bad news is that there are very few details on the assumptions, especially on sovereign. In reality, nothing. The numbers I’ve seen are 16, 17 (percent haircut) on Greek debt, 8 Portuguese, 3 Spain, 0.7 France and zero Germany. That is coming from an unidentified source and if it is true it is quite far away from the real numbers on the market. Greek debt is facing a discount between 30 to 50 (percent) on the trading market.”

“In my opinion stressed is going far beyond today’s numbers regarding Greek debt.”


“Looks like a pretty smooth test. The (European Union) predicts economic growth of Europe to reach 1.0 percent this year and 1.7 percent next year. The IMF predicts GDP of the Euro Area to expand 1.4 percent in real terms this and 1.6 percent next year. It has raised the growth forecast for GDP globally to 4.6 percent this year. Given the development of credit default swaps in May most of the risk of a sovereign default has been priced in. As a result good news for banks.”


“We see the publication of an EU-wide stress positively as it should help to restore confidence in the banking sector. However, this will be only reached in our view if the test is based upon realistic stress parameters (including a haircut on sovereign debt), full transparency on the methodology and if measures are put in place to strengthen the banks’ capital positions that fail the test.”


“Financial supervisory authorities should now have a clear idea of the status of the financial institutions under their supervision. So why do we still need an additional stress test? The CEBS (Committee of European Banking Supervisors) obviously hopes that the publication of the stress test will create confidence in the stability of the European banking sector.

For that to be possible the stress test does however have to cover the risk scenarios which currently cause concerns. It is therefore decisive for the CEBS stress test to include the default of government bonds into the risks to be tested. So far the CEBS has not commented on the matter, but of course rumors are circulating.”

Should it be confirmed that only moderate haircut scenarios are being examined the whole thing could easily backfire. In that case prophets of doom would consider the choice of scenarios a deliberate attempt to make the results look better than they are. In that case the test would be unable to provide support for the euro.”

(Compiled by Christoph Steitz and Maria Sheahan in Frankfurt; Editing by Greg Mahlich)

Analysts’ view: European banking stress tests