EU banks face new stress tests

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Banks in the European Union will be subject to new, improved stress tests next year, which last time saw 24 banks fail.

The European Banking Authority has announced new tests will begin in the first quarter next year, and will build on the tests carried out in 2014. This year saw less strigent transparency tests of banks rather than a full stress test.

The changes to the stress tests mean that a ‘static balance sheet’ will be tested, to ensure it is not impacted by changes to the balance sheet during the test, which could skew results. Full draft methods will be announced before the end of the year.

The 2014 stress tests saw 24 banks fail – none of them UK banks – being told they needed to improve their finances or risk closure.

The EBA says: ”The 2016 EU-wide stress test will however, build on the lessons learned from previous exercises and, for example, will be more closely aligned with the cycle of the annual supervisory review and evaluation process, to ensure the results of the stress test are incorporated as an input to that process.”

The results of the stress tests are due to be released in Q3 next year.