Thursday

19th Jan 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.

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

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 should raise own taxes, says report

A group chaired by former Italian PM and EU commissioner Mario Monti says Brexit should be used to create EU-level levies to depend less on member states contributions, and to abolish member states rebates in the EU budget.

Stakeholders' Highlights

  1. Caritas EuropaEU States to Join Pope Francis’s Appeal to Care for Migrant Children
  2. UNICEFNumber of Unaccompanied Children Arriving by sea to Italy Doubles in 2016
  3. Nordic Council of Ministers"Nordic Matters" Help Forge Closer Bonds Between the UK and the Nordic Region
  4. Computers, Privacy & Data ProtectionThe age of Intelligent Machines: join the Conference on 25-27 January 2017
  5. Martens CentreNo Better way to Lift Your Monday Blues Than to Gloss Over our Political Cartoons
  6. Dialogue PlatformThe Gulen Movement: An Islamic Response to Terror as a Global Challenge
  7. European Free AllianceMinority Rights and Autonomy are a European Normality
  8. Swedish EnterprisesHow to Create EU Competitiveness Post-Brexit? Seminar on January 24th
  9. European Jewish CongressSchulz to be Awarded the European Medal for Tolerance for his Stand Against Populism
  10. Nordic Council of Ministers"Adventures in Moominland" Kick Off Nordic Matters Festival in London
  11. PLATO15 Fully-Funded PhDs Across Europe on the Post-Crisis Legitimacy of the EU - Apply Now!
  12. Dialogue PlatformInterview: Fethullah Gulen Condemns Assassination of Russian Ambassador to Turkey

Latest News

  1. 'Be patient,' ECB chief tells Germany
  2. EU cannot copy Australia's offshore asylum model
  3. Brexit men launch anti-EU website
  4. Germany details its 'Marshall Plan' for Africa
  5. IMF predicts 'pain' for UK, as banks prepare London exit
  6. EP deal could help Tusk keep Council job
  7. UN struggles to monitor fate of readmitted Syrians in Turkey
  8. European space chief: Moon village is 'more or less a fact'