EU bank stress tests 'will be tougher this year'

8 April 2011

European banks can expect more stringent stress tests this year as it has been revealed regulators will employ a tougher measure of capital on 90 lenders.

The move has come following complaints that 2010's assessments were not hard enough, Bloomberg reports.

Under the new scenarios, the European Banking Authority noted institutions will be expected to maintain a Core Tier One capital ratio of at least five per cent.

Last year, national regulators were permitted to use their own capital definitions and the process was questioned by bank analysts.

James Babicz, head of risk at business analytics company SAS, said: "Make no mistake, five percent of Core Tier One is harder in comparison with last year."

He added, however, that a bank's risk should be considered ahead of its static capital threshold.

A recent survey conducted by Morgan Stanley showed that banks in Europe are expected to generate more than $57 billion of capital this year.

By Claire Archer

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