European bank stress tests 'not tough enough'

26 July 2010

The stress tests conducted on banks across Europe have been criticized for having too narrow a focus.

Seven firms failed the examination, including five Spanish savings banks, Agricultural Bank of Greece and German-based Hypo Real Estate Holding.

Steve Bernstein, chief executive officer of Oppenheimer Investment Asia, told Bloomberg: "The test isn't rigorous enough.

"As time goes on, there must be other banks that need to raise more capital. The fact that they only look at one part of the portfolio isn't enough."

He added that regulators should have also looked into each bank's investment portfolio.

Under the rules of the tests, any bank was deemed to fail if it was judged not to have the resources to maintain a tier one capital level of six per cent in the event of a recession and sovereign debt crisis occurring.

Last week, the International Monetary Fund called on EU leaders to conduct more transparent tests, citing fears that there will be some uncertainty regarding how stringently they have been conducted.

By Claire Archer

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