Stress test of European banks
The Committee of European Banking Supervisors, CEBS, has today published the results of a stress test of the European banking system. The stress test has been conducted to assess the stability of the European banking sector. The four major Swedish banks have participated in the test and the assessment is that they are well equipped to deal with unexpected events.
Last year, the Economic and Financial Affairs Council (ECOFIN), which is made up of the economics and finance ministers of the Member States, commissioned CEBS to conduct a stress testing exercise of the European banking system together with the European Central Bank (ECB), the national supervisory authorities and the European Commission. The aim of the exercise was to assess the resilience of the banking system as a whole as well as the ability of individual banks to manage any new financial crises and potential sovereign risks and fiscal problems in individual countries.
The stress test covers 91 European banks from 20 Member States. Together, the tested banks represent 65 per cent of the banking sector in the EU. In each country, the banks should constitute at least 50 per cent of the national banking sector, measured in terms of total consolidated assets. The test has been drawn up by the ECB and the European Commission on the basis of two commonly agreed alternative scenarios for macro-economic development in the EU in 2010 and 2011.
In Sweden, SEB, Handelsbanken, Nordea and Swedbank have been tested.
Finansinspektionen has had the main responsibility for conducting the test in Sweden.
For more detailed information, please see the links below. The individual results are also presented by the respective banks.
Questions and answers on the CEBS stress test of the European banking system
Why has CEBS conducted a stress test of banks in Europe?
CEBS has carried out the stress testing exercise to assess the stability of the European banking sector and the ability of individual banks to resist new financial shocks. Greater transparency regarding the status of the European banking system and the resilience of individual banks to unexpected difficulties will help to reduce uncertainty and increase confidence on the financial markets. This will also increase the possibility to address any weaknesses in the European financial system.
As far as Sweden is concerned, the assessment is that the four major banks are well equipped to deal with unexpected events. They are well-capitalised in an international perspective and it is expected that their loan losses will continue to decline. Such a situation represents a sound foundation for stability on the Swedish financial markets.
The Riksbank also conducts stress tests for the major Swedish banks. How do these differ from the test conducted by CEBS?
It is difficult to compare these stress tests with each other as they are based on different underlying assumptions regarding a much weaker economic situation. Different stress tests can also provide different results as the circumstances differ in different institutions or countries. Nor should one confuse stress tests with forecasts about the future. Stress tests are simply one way of studying the possible and limited repercussions of considerably weaker economic development for a bank or a banking system.
The Swedish banks perform well in the CEBS stress test. The test, like the Riksbank stress test presented in Financial Stability Report 2010:1 is based on a scenario with much weaker economic development in 2010 and 2011. The Riksbank tests the resilience of the major Swedish banks to a weaker development of the economy than forecast in the Report's main scenario. In the CEBS scenarios, on the other hand, comparisons are made with the European Commission's forecasts for the two years ahead. However, both the Riksbank test and the CEBS test show that the Swedish banks have adequate capital to deal with the loan losses that could occur if the economic situation seriously deteriorated.
How will the CEBS stress test for the European banks be followed up?
How the information from this stress test will be used in the future is a matter that the parties involved will decide. However, CEBS will most likely, in its expected new capacity as the European Banking Authority, continue with EU-wide stress testing of the banking sector. If the test reveals that an individual bank requires new capital, it will be up to the finance ministry of the Member State concerned to ensure that there are support measures that can be used to capitalise this bank.