EU okays tougher bank stress tests

EU finance ministers agree to more stringent methodology to test if European banks can indeed weather financial crisis.

    The tests are part of European Union's efforts to draw a line under the euro zone's sovereign debt crisis [GALLO/GETTY]

    European Union (EU) finance ministers have agreed to include targets on liquidity in new, tougher European bank stress tests.

    According to EU presidency sources, on Tuesday, the tests will encompass the same 91 banks that were tested in 2010.

    But the methodology of the new tests will be more stringent, including not only bank trading books, but also banking books and tough tests of core tier 1 capital.

    These will  be conducted by the end of May, with results expected in the third quarter.

    "The message is that the tests have to be much more stringent and credible," one EU presidency source said.

    The exact criteria of the tests will be worked out by March.

    The European Central Bank, which will play a key role in designing the tests, expects more banks to fail them than the five that did so last year because of the liquidity criterion, EU sources said.

    EU sources also said that in parallel to the EU tests, the International Monetary Fund would conduct a similar exercise in Britain, Sweden and Luxembourg.

    The bank stress tests are part of the European Union's efforts to win back market confidence in the stability of its financial system and draw a line under the euro zone's sovereign debt crisis.

    SOURCE: Agencies


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