AT A GLANCE | KEY DETAILS OF THE STRESS TESTS
The objective
The stress tests aim to assess the resilience of the EU banking sector and banks’ ability to absorb further possible shocks on credit and market risks, including sovereign risks, and to assess their current dependence on taxpayer support measures.
How the tests will work
The programme will be conducted on a bank-by-bank basis using baseline and “disaster” macro-economic scenarios for 2010 and 2011, developed in cooperation with the European Central Bank and European Commission. The exercise envisages adverse conditions in financial markets and a shock on interest rates to capture an increase in risk premia linked to a deterioration in EU government bond markets. The worst-case scenario assumes a three percentage point deviation of GDP for the EU compared to the European Commission’s forecasts over the two-year time horizon. The sovereign risk shock in the EU represents a deterioration of market conditions as compared to the situation in early May 2010.
How far they will reach
The stress test exercise will include the major EU cross-border banking groups and key domestic credit institutions in Europe. In each EU member state, the sample includes banks, in descending order of size, to cover at least half of the national banking sector, as expressed in total assets. Ninety-one banks represent 65 per cent of the EU banking sector. Banking groups have been tested on a consolidated level, meaning subsidiaries and branches of an EU cross-border banking group have been included.
When the results are due
Results of the stress test will be disclosed, on an aggregated and a bank-by-bank basis, on 23 July. Brussels emphasises the stress testing exercise will not provide forecasts of expected outcomes, but rather a what-if analysis aimed at determining whether European banks are holding adequate capital.
Key banks involved
UK – Royal Bank of Scotland; HSBC Holdings; Barclays; Lloyds Banking Group.
France – BNP Paribas; Credit Agricole; BPCE; Société Générale.
Germany – Deutsche Bank; Commerzbank; Hypo Real Estate; Landesbank Baden-Wuerttemberg; Bayerische Landesbank; DZ Bank; Norddeutsche Landesbank; Deutsche Postbank; WestLB; HSH Nordbank; Landesbank Hessen-Thueringen; Landesbank Berlin; Dekabank Deutsche Girozentrale; WGZ Bank.
Ireland – Bank of Ireland; Allied Irish.