Bank stress tests only lift a tip of the veil

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The latest results of the EU-wide stress test exercise conducted by the European Banking Authority (EBA) and the European Central Bank (ECB) provide a reassuring picture of the health of the European banking sector. After the mid-March market stress, according to the ECB and the EBA there are no reasons to be concerned about the health of the European banking system. But it is all a matter of the parameters of the stress tests and of the granularity of a bank-specific evaluation, which is very difficult to assess based upon the respective reports. It seems that both started from very static assumptions, and that the lessons of the Silicon Valley Bank (SVB) debacle have not been taken into account.

After the turbulence in the US and European financial markets in March, publishing the bank stress test results on a Friday afternoon in the midst of the holiday season raises suspicions. How are European banks doing? What about their exposure to the bond markets in a year of dramatically rising interest rates? Can they cope with fast deposit withdrawals in the internet age? But also, have climate risks and the green transition been considered?

Karel Lannoo is General Manager of ECMI and CEO of CEPS.