Banking district in Frankfurt am Main: no one can fail
Photo: Frank_May / picture-alliance / dpa / dpaweb
A year later than originally planned, Europe's supervisors have again subjected the banks on the continent to a major health check.
Are the institutes adequately equipped if the corona pandemic worsens again?
Are the capital buffers enough for a severe economic slump?
In the past few months, the financial institutions had to calculate how a combination of various stress factors would affect their balance sheet.
The European Banking Authority (EBA) and the European Central Bank (ECB) will publish the results of the stress test this Friday from 6 p.m.
The new edition of the European bank stress test should actually be carried out in 2020.
But in order not to burden the institutes with further tasks in the middle of the corona crisis, the exam was postponed.
Checked more than 100 banks
The European Banking Authority (EBA) took a close look at 50 financial institutions from 15 countries, which together represent around 70 percent of the banking market in Europe in terms of assets. These include 7 from Germany: BayernLB, Commerzbank, Deutsche Bank, DZ Bank, Landesbank Baden-Württemberg, Landesbank Hessen-Thuringia and Volkswagen Bank. In parallel to the EBA test, the ECB examined another 51 banks in an almost identical stress test for the euro area.
In the crisis scenario of the EBA test, which is considered to be particularly severe, it is assumed that the corona crisis is coming to a head and that the economic setbacks as a result of the pandemic will last longer.
In this scenario, the economy in the European Union would shrink by a cumulative 3.6 percent in the three years up to 2023.
At the same time, the unemployment rate would rise and property prices would collapse sharply.
In addition, it is assumed that market interest rates will continue to fall.
Banks cannot fail the tests.
The results flow into the “SREP” process (“Supervisory Review and Evaluation Process”), in which supervisors assess the viability of business models and the appropriateness of risk management.
On this basis, the supervisors can instruct individual institutions to strengthen their capital buffers.
Since the financial and economic crisis of 2008/2009, supervisors around the world have regularly used such stress tests to check where possible risks lie dormant in the balance sheets and how vulnerable banks would be in the event of a crisis.
Such tests and the conclusions drawn from them are not undisputed.
Because which risks are weighted to what extent in the hypothetical scenarios is ultimately in the hands of the supervisor.
mik / dpa-AFX