Stress test results on 91 banks set for release on 23 July

BRUSSELS - The European committee in charge of stress testing the region's largest banks has released the names of 91 firms under examination.

In a statement to the press on Wednesday evening (7 July), the Committee of European Banking Supervisors (CEBS) said the tests would assume a three percent fall in GDP, compared to recent commission forecasts, with the results set to be published on 23 July.

Together the firms make up 65 percent of the EU's banking sector.

"The exercise is being conducted on a bank-by-bank basis using commonly agreed macro-economic scenarios (baseline and adverse) for 2010 and 2011, developed in close cooperation with the ECB and the European Commission," read the CEBS statement.

The committee is made up of national supervisors and central bank representatives, with tasks including the co-ordination of work carried out by national supervisors and advising the European Commission.

"On aggregate, the adverse 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 statement continued.

EU finance ministers mandated the second round of stress tests last December, in order to determine the ability of European firms to withstand further financial shocks and their current dependence on support mechanisms.

Leaders last month called for the results to be made public in a bid to end market doubts over the stability of bloc's banking sector, with the number of firms under examination also increased.

Since then however, analysts have emphasized the need for the tests to be credible, with any doubts over their thoroughness likely to increase investor concern rather than reduce it.

Sovereign debt haircut

Wednesday's CEBS statement included no information on how the risk associated with eurozone sovereign bonds will be calculated, an area of chief concern to banks, market analysts and investors.

Many of Europe's largest banks hold billions of euros worth of Greek, Portuguese, Spanish and Irish bonds, leading to questions over their ability to withstand a potential debt default by one of these countries.

Reports suggest that CEBS will distinguish between the bonds of different member states, testing the ability of banks to withstand a roughly 20 percent markdown in the value of Greek debt. Similar haircuts for Spanish and Portuguese bonds could weigh in at eight and five percent respectively.

The 91 firms are now frantically working out how well they will survive the tests, with some likely to need a major boost in capital holdings.

Germany's regional banks are thought to be among the weakest being tested, with reports suggesting their CEOs are pushing for their test results to be delayed.

Spain's regional lenders are also considered to be vulnerable, but Madrid hopes an overall positive assessment of the country's banks will bring an end to recent negative speculation over the country's financial sector.