Summary of The EBA EU-Wide Stress Test 2016

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Recommendation

European banks are diverse and engage in different forms of risk-taking, so assessing their fundamental stability is no easy task. Researcher Willem Pieter De Groen finds that the current European Banking Authority stress test offers greater insights into existing problems, such as nonperforming loans and corporate and government debt exposures, than into banks’ underlying soundness and risk resilience. getAbstract recommends this scholarly analysis – written more for the banker, economist and regulator than the layperson – for its cogent arguments in favor of a more robust methodology for bank stress testing.

In this summary, you will learn

  • What the European Banking Authority’s stress test reveals about European banks,
  • Why this test fails to gauge banks’ overall stability and
  • What changes in the testing methodology would provide a clearer picture of European banking’s underlying condition.
 

About the Author

Willem Pieter De Groen is a research fellow at the Center for European Policy Studies.

 

Summary

According to the July 2016 outcomes of a biannual stress test administered by the European Banking Authority (EBA) to 51 European bank groups, a wide disparity exists in banks’ ability to weather certain economic and financial shocks. On average, the “fully loaded common equity tier 1” capital of the...

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