Banks across Europe will see details of their capital strength, risky assets and how well they will fare in stressful scenarios published in a simple 10-page document as part of eurozone stress tests being conducted on the region’s largest lenders in the coming weeks.
Final templates for the balance sheets of 124 lenders undergoing the probes this year have been released by the European Banking Authority ahead of the results of the stress tests in October, which the authority is conducting alongside the European Central Bank, reports the FT’s Alice Ross.
The eurozone’s largest lenders have spent all year preparing for the stress tests and the accompanying asset quality review, which has seen regulators try to bring uniformity to the way risky or opaque assets are accounted for on banks’ balance sheets.
Senior bankers have said that they welcome the stress tests and hope they will be viewed by market participants as trustworthy. “We hope the tests will finally put concerns over the transparency of European bank balance sheets to bed,” said one.
The EBA said that the templates, which it described as “editable and user-friendly”, would bring greater transparency to Europe’s banks and improve market discipline across the sector.
The stress tests, which are being conducted in the coming weeks, will probe the strength of Europe’s banks under both normal and “adverse” conditions until the end of 2016. Under the adverse scenario, banks would have to withstand a slump in the global debt markets, a rise in funding costs, a new recession and plunges in property and equity prices.
Lenders that are found to have capital shortfalls in October will have just two weeks to come up with plans to plug the hole, and a further six to nine months to raise the money.
