Restoring confidence in European banks
On 23 July, the Committee of European Banking Supervisors (CEBS) released its report on the results of the stress test assessing the resilience of the EU banking system to possible adverse economic development until the end of 2011. It is comforting to know that 84 from the sample of 91 banks passed the testing, so they should be able to survive even a double-digit recession should one materialise in Europe. Only 7 banks, from Spain, Greece and Germany, failed to meet the capital requirements of the exercise and will need to raise new capital.
The recent financial crisis affected the confidence in the European banks. After creation of the mechanism of the up to 750 billion euros European Financial Stability Fund and the decision to reinforce the economic governance, the European Union took another step towards restoring the trust in the banking sector through more transparency.
91 banks, tested in coordination with the European Central Bank, the European Commission and 20 national supervisors, represent 65 % of the European banking market in terms of total assets. The test, conducted over a two years horizon, focused mainly on the ability of banks to absorb possible shocks from credit and market risks.
The results of the testing show that the efforts of significant recapitalisation, restructuring and cleaning out of portfolios of the banks in the EU over the past year start to bring positive results.
The CEBS was mandated to conduct the EU-wide stress test exercise by the Economic and Financial Council (ECOFIN) in December 2009 and by the European Council on 17 June 2010. "The resilience and the transparency of the banking sector must be ensured. Progress in the next months is essential," stressed the conclusions of this EU summit.
The Committee of European Banking Supervisors is composed of high level representatives from the banking supervisory authorities and central banks of the EU.
Committee of European Banking Supervisors