European banking stress tests too soft, auditor group warns
Stress tests designed to assess the health of European banks have not taken some systemic risks into account, according to a major auditing report released today.
The European Court of Auditors (ECA) has found “shortcomings for assessing resilience against systemic risk” in the stress tests carried out by the European Banking Authority (EBA), raising questions over the risk-assessment measures that the body uses to predict how banks will perform under tough conditions.
According to the report, the EBA found that “negative effects of the shock were concentrated in several large economies most of which performed quite well during the last recession, rather than on the countries that were most affected by that crisis”.
The ECA added: “Owing to the lack of resources and the current governance arrangements, the EBA was not in a position to ensure ‘comparability and reliability of methods, practices and results’, as envisaged in the regulation. Instead, it had to rely primarily on national supervisors. On the positive side, a large amount of information was published.”
Late last year the EBA published results showing that every financial institution in the EU passed its “adverse scenario” stress tests in a report that was welcomed by the industry a decade on the financial crash.
All 48 of Europe’s biggest banks passed the major capital thresholds, beating the common tier ratio of 5.5 per cent under adverse stress.
British bank Barclays ranked lowest in the test, while troubled German lender Deutsche Bank had performed better than some forecasters had predicted.