Thursday

17th Aug 2017

US to conduct stress tests against euro collapse scenario

  • Wall Street: US banks have significant exposure to eurozone debt (Photo: EUobserver)

US banks are to be subjected to stress tests on the scenario of a sudden shock to the American economy if the eurozone crisis significantly deteriorates.

The US Federal Reserve on Tuesday (22 November) announced that it would hold the tests, the third round of such trials since the start of the economic crisis, to measure which banks would be able to keep their heads above water if worst comes to worst.

Thank you for reading EUobserver!

Subscribe now and get 40% off for an annual subscription. Sale ends soon.

  1. €90 per year. Use discount code EUOBS40%
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

The tests will assume a rise in US unemployment to 13 percent up from the current nine percent and a fall into recession for the US economy beginning at the end of this year.

The Fed said the tests will involve measurements against similar price and rate movements as happened in the second half of 2008, when the crisis erupted, but also on "potential sharp market price movements in European sovereign and financial sectors."

The trials, which will take place in the next few weeks, will cover 31 banks, up from the 19 that participated in the first round in the spring of 2009.

The results will be published by the end of March.

The move comes amid growing concern at a decline in US bank stocks in recent weeks over worries about the extent of their exposure to eurozone sovereign and private debt.

Additionally, Fitch, the credit rating agency, last week warned that the "broad outlook for US banks will darken" if the eurozone crisis is not resolved soon.

The US ambassador to the EU, William Kennard, in Brussels on Tuesday declined to comment on actions Washington is taking in preparation for a potential collapse of the eurozone.

The growing fears across the Atlantic come as banks in Europe have been making a dash to the European Central Bank (ECB) for emergency funds.

EU commercial banks on Tuesday borrowed sums from the Frankfurt institution at levels not seen since 2009. The ECB said that 178 banks across Europe withdrew some €247 billion in one-week loans.

The development suggests Europe's banks are finding it increasingly difficult to access credit from each other at sustainable rates due to uncertainty on their exposure to weak eurozone governments bonds.

EU agrees to fresh bank bail-outs

The EU's 27 member states have finally agreed to a recapitalisation of the region’s banks. Eastern powers have at the same time managed to win a commitment that they will be protected against capital outflows as a result.

Commission to unveil bank bail-out plan

European Commission President Jose Manuel Barroso has said that the EU executive will put forward plans for a fresh round of bank bail-outs across Europe on Wednesday.

Merkel, Sarkozy will do ‘whatever necessary’ to bail-out banks

Financial markets hoping for the outline of some grand strategy for dealing with the ever-worsening eurozone crisis are likely to be disappointed by the vague announcement offered up by the French president and German chancellor after emergency talks in Berlin on Sunday.

Agenda

This WEEK in the European Union

A summit of EU and US leaders on Monday will likely put more pressure on Europe to get its act together on the euro-crisis risking to bring down the world economy.

Frustration on eurozone crisis to mark EU-US summit

EU and US leaders will gather for a bilateral meeting on Monday with little of substance likely to be agreed and against a backdrop of exasperation in Washington over the handling of the eurozone crisis.

Feature

What happens when a currency collapses? Ask Bulgaria

Fifteen years ago, both Bulgaria and Romania went through rampant inflation linked to a financial crisis. Bucharest narrowly avoided the collapse, but Sofia was less fortunate and experienced a meltdown of the sort Greece is currently trying to prevent.

EU cautious with German diesel plan

The European Commission welcomed the German carmakers' pledge to update software in diesel cars, but is waiting for details on how emissions will be reduced.

News in Brief

  1. Russian power most feared in Europe
  2. UK unemployment lowest since 1975
  3. Europe facing 'explosive cocktail' in its backyard, report warns
  4. Danish police to investigate misuse of EU fishing rules
  5. German constitutional court questions ECB's €2tn spending
  6. Low support for Norway's labour party ahead of elections
  7. Slovakia's future is with core EU, says PM
  8. Italy relieved as migration drops to lowest level since 2014

Stakeholders' Highlights

  1. ACCABusinesses Must Grip Ethics and Trust in the Digital Age
  2. European Jewish CongressEJC Welcomes European Court of Justice's Decision to Keep Hamas on Terror List
  3. UNICEFReport: Children on the Move From Africa Do Not First Aim to Go to Europe
  4. Centre Maurits CoppietersWe Need Democratic and Transparent Free Trade Agreements Says MEP Jordi Solé
  5. Counter BalanceOut for Summer, Ep. 2: EIB Promoting Development in Egypt - At What Cost?
  6. EU2017EELocal Leaders Push for Local and Regional Targets to Address Climate Change
  7. European Healthy Lifestyle AllianceMore Women Than Men Have Died From Heart Disease in Past 30 Years
  8. European Jewish CongressJean-Marie Le Pen Faces Trial for Oven Comments About Jewish Singer
  9. ACCAAnnounces Belt & Road Research at Shanghai Conference
  10. ECPAFood Waste in the Field Can Double Without Crop Protection. #WithOrWithout #Pesticides
  11. EU2017EEEstonia Allocates €1 Million to Alleviate Migratory Pressure From Libya in Italy
  12. Dialogue PlatformFethullah Gulen's Message on the Anniversary of the Coup Attempt in Turkey