Fears set scene for tough EU bank tests
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.