A new round of stress tests for European banks have come under criticism for being too soft.
Some analysts say that the scenarios, which will be used to test the strength of bank finances, do not represent a significant enough step forward from controversial tests undertaken last year.
The stress tests came in for heavy criticism at the time. Only seven out of 91 lenders across the continent failed, and none of them came from Ireland. Only months later, Ireland was forced to go cap in hand to European Union partners and the International Monetary Fund because its government finances could not cope with the scale of losses in its banking system.
Some of the scenarios set forth in the new stress tests are less punishing than those in the 2010 round, reports suggest. For example, the tests will examine the impact of a 15 per cent fall in stock markets, which is less than the 20 per cent used last year. The exercise will model the impact of a 0.5 per cent fall in eurozone economic output this year and 0.2 per cent fall next.
One bank analyst reportedly said yesterday: “There is nothing in what has emerged to change the market’s views about this process. It was a joke last time. Why is it not going to be a fudge this time?”
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Full details of the new tests have yet to be revealed, but the German newspaper Handelsblatt published some leaked figures this week. These showed that the tests also include some extra parameters that were lacking last year.
The European Banking Authority, which oversees the region’s lenders, is due to disclose full details of the tests to 88 banks on Friday, and will go on to publish a list of participating banks on March 18.