Monday

3rd Oct 2022

Fresh stress tests for EU banks

  • Previous tests failed to spot major problems in Irish banks (Photo: Matt Buck)

EU finance ministers have agreed the broad outlines of a fresh round of stress tests on major European financial institutions.

The reviews will be much more thorough-going than the stress tests of key banks last year, an exercise that at the time was cheered as robust by policymakers but yet failed to foresee any crisis in the Irish banking sector.

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The latter development prompted the EU to undertake its second sovereign bail-out since the start of the eurozone debt crisis.

"We are going to draw the lessons by making the next tests more rigorous and even more credible," said internal market commissioner Michel Barnier on Tuesday (18 January) at the end of a two-day meeting between Europe's economy chiefs in Brussels.

The new stress tests will take into account underlying capital, liquidity and exposure to sovereign debt.

In July last year, the strength of the positions of some 91 institutions was tested against potential crisis situations, yet just seven were deemed to have failed the examination.

The methodology for the round, which will imagine even more severe crisis situation, notably in property markets, has yet to be agreed upon, but will be undertaken by the new European Banking Authority, with ministers expecting the tests to be completed by the end of May.

The level of disclosure once the results are concluded however remains a point of division amongst ministers.

The move came as Portugal, currently in the eurozone's sovereign-debt emergency room, saw increased pressure on its bond yields, with rates climbing on 10-year bonds to 6.951 percent, shy of the seven-percent level thought to be the tipping point for the country to request a bail-out.

Meanwhile on Tuesday, the Hungarian EU presidency enjoyed renewed opprobrium from other member states when the country's finance minister made the gaffe of publicly saying the eurozone debt crisis could last another ten years.

Mr Gyorgy Matolcsy made the comments during the public, televised portion of the meeting of EU finance ministers.

There is a likelihood "that the euro is endangered for another decade," he said.

IMF issues warning about European banks

IMF head Christine Lagarde has called into question the health of European banks amid a stark warning about a global economic slowdown.

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