Fears set scene for tough EU bank tests

Daily Trust - - NEWS -

Fears of euro zone de­fla­tion, emerg­ing mar­ket­stur­moil and a de­ter­mi­na­tion not to re­peat past mis­takes mean Euro­pean reg­u­la­tors are likely to come up with the tough­est set of tests for the re­gion’s banks that they have ever faced.

The Euro­pean Bank­ing Author­ity (EBA) will on Tues­day re­veal the cri­sis sce­nar­ios that banks will have to prove they can with­stand with­out re­sort­ing to the kind of tax­payer bailouts that all but bankrupted some coun­tries in the 2008-2012 cri­sis.

Banks that fall short of cap­i­tal un­der the imag­ined sce­nar­ios will have to pro­duce a plan to boost their re­serves by rais­ing fresh funds from in­vestors, sell­ing as­sets or hang­ing on to prof­its in­stead of pay­ing div­i­dends. Banks have al­ready raised bil­lions in cap­i­tal and made other re­forms ahead of the tests, which reg­u­la­tors hope will fi­nally ban­ish any in­vestor doubts about the in­dus­try and al­low it to re­fo­cus on lend­ing to boost growth.

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