BRUSSELS/FRANKFURT, April 25 European banks will
be tested on their ability to withstand
a recession stretching through 2014 and the following year as
part of a landmark review into whether they finally have enough
capital to withstand economic shocks, a source familiar with the
tests said on Friday.
The European Banking Authority (EBA) is testing the capital
adequacy of 124 of the EU's most important banks, but will not
officially reveal details of the "stressed scenarios" banks will
need to be able to withstand until next week.
Banks will be tested against economic growth in 2014 that is
2.2 percentage points below the European Commission's 1.5
percent forecast, implying a 0.7 percent contraction, a person
familiar with the figures told Reuters on Friday, confirming a
report by newswire Bloomberg.
For 2015, banks will be tested against economic growth that
is 3.4 percentage points below the European Commission's
forecast, implying a contraction of 1.4 percent, the source
The scenarios are harsher than those applied in previous
stress tests in 2011, when the "adverse" scenario was 2.1
percentage points worse for the first year in the tests' horizon
- 2011 - and 2.0 percentage points worse for the second year.
Regulators are determined that the tests are stricter this
time, even though Europe's economy has improved, because
previous tests were deemed too soft.
Banks across Europe, such as Italy's Monte dei Paschi
and Greece's largest banks including Piraeus
and Alpha Bank have pre-emptively raised billions of
euros of extra capital to try to be sure of meeting the tests'
Others, most dramatically Italy's Unicredit, have
set aside billions extra to cover loan losses.
"The idea of a more benign outlook from a short-term
perspective doesn't stand up to scrutiny," said a second source
with knowledge of the projections, pointing to increased
uncertainty in global markets as a key risk which banks face.
The European Central Bank (ECB) is heavily involved in
2014's round of stress testing and wants to ensure any capital
issues are identified and resolved before it assumes direct
supervisory responsibility for the euro zone's 128 most
important banks in November.
The stressed scenarios were set by the ECB in 2011, and by
the European Systemic Risk Board, which is chaired by ECB
President Mario Draghi, in 2014.
The ECB declined to comment.
(Reporting by Reuters Bureaus; Editing by Alex Smith and David