UPDATE: Bank Watchdog Lays Out Key Features Of EU Stress Tests

7th Jul 2010 20:09

By Carolyn Henson Of DOW JONES NEWSWIRES BRUSSELS (Dow Jones)--Europe's banking supervisor late Wednesday named the 91 banks that it will test for resilience to further market and credit risks and laid out the key features included in the tests. The Committee of European Banking Supervisors said banks being tested represent 65% of the EU banking sector and at least 50% of national banking sector in terms of assets. The banks are being tested individually but following a common set of criteria. The adverse scenario assumes a three-percentage-point decline in GDP from European Commission forecasts for 2010 and 2011, and tests for resilience to sovereign risk at a level beyond the market conditions experienced in early May 2010. The EU expects its economy to expand 1.0% this year and 1.75% in 2011. The supervisor didn't provide more detail. The EU decided late last month to expand ongoing stress tests of its 25 biggest banks to include second-tier banks such as German and Spanish savings banks, the Landesbanken and Cajas. The aim was to give an idea of national as well as EU-wide resilience to any further financial or economic troubles. The scope of the tests was also extended to include shocks from sovereign debt defaults. Unlike previous banking stress tests in Europe, this time the results will be made public. The publication date will be July 23, the banking supervisor confirmed. The EU hopes the exercise will calm market nerves which have been frayed by internal wrangling among EU nations over the Greek bailout and fears that EU banks are holding billions of euros of exposure to Greek and other debt-burdened counties in southern Europe where a risk of default remains material. -By Carolyn Henson, Dow Jones Newswires; +32 2 741 1481; [email protected] (END) Dow Jones Newswires July 07, 2010 15:09 ET (19:09 GMT)