Goldstein, M. (2014) “The 2014 EU-wide bank stress test lacks credibility“, VoxEU Organisation, 18 Νοεμβρίου.
Results from last month’s EU-wide stress test are reassuring, especially for countries at Europe’s core. This column warns against a rosy interpretation. The test relies on risk-weighted measures of bank capital ratios that have been shown to be less predictive of bank failure than unweighted leverage ratios – a metric already adopted by the US Fed and Bank of England. In addition, many experts recommend much higher leverage ratios than currently required. The ECB must do more to fix undercapitalisation.
On October 26th 2014 the European Central Bank (ECB) and the European Banking Authority (EBA) released the results of the latest EU-wide stress test and the accompanying asset quality review (AQR).
The 2014 stress test encompasses four key findings:
- The aggregate capital shortfall for the 123 banks participating in the test is €24.6 billion;
- Only 24 of the 123 banks are undercapitalised, as indicated by their inability to meet transitional common equity tier one capital ratios of 5.5 and 8.0% in the baseline and adverse scenarios, respectively;
- The undercapitalised banks are all in Italy, Greece, and Cyprus; and
- The largest banks in France and Germany have ample capital.
These conclusions are simply not credible. To understand why, consider the following facts and arguments…
Σχετικές αναρτήσεις:
- De Groen, W. P. (2014) “Was the ECB’s Comprehensive Assessment up to standard?“, Centre for European Policy Studies (CEPS), Policy Brief Νο. 325, 10 Νοεμβρίου.
- STRATFOR (2014) “Europe: Building a Banking Union“, Europe’s Economic Crisis Timeline, 30 Οκτωβρίου.
- Acharya, V. & Steffen, S. (2014) “Making sense of the comprehensive assessment“, VoxEU Organisation, 29 Οκτωβρίου.