EU bank regulator to stress-test 91 banks

Europe's banking supervisor said that 91 banks will take part in the financial sector stress tests that will check their resilience to further market and credit risks. The Committee of European Banking Supervisors also laid out the key features included in the tests. "The exercise is being conducted on a bank-by-bank basis using commonly agreed macro-economic scenarios," the CEBS said. The scenarios would show a different impact on the various European Union member states, said CEBS. It also envisages adverse conditions in financial markets and a shock on interest rates to capture an increase in risk premium in bond markets, said London-based CEBS. The adverse scenario assumes a 3% 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% this year and 1.75% in 2011. The scope of the tests was also extended to include shocks from sovereign debt defaults.



Banks being tested represent 65% of the EU banking sector and at least 50% of national banking sector in terms of assets, the regulator said. Most of Europe's large banks that operate in more than one country are on the list. Many German and Spanish regional banks, which are thought to be among the weakest, are also on the list. Results of the tests will be disclosed on July 23. The list covers banks such as BNP Paribas, HSBC, Deutsche Bank, Santander, UniCredit and ING.

A markdown of 16% to 17% off the market price would be applied to Greek debt, according to some media reports. Greece's 10-year bonds are trading at about 75% of their par value at present. No markdown would be applied to German sovereign bonds, the reports said. A 0.7% markdown would be applied to French sovereign bonds, according to reports. Government bonds of Portugal, Spain, Italy and Ireland would see more significant markdowns, the reports said.