EU-wide Stress Test of Banks Planned

The EU wants to do its own stress testing of its banks and has asked the Committee of European Banking Supervisors (CEBS) to organize one,
story here.

According to a press release on the CEBS website, the test will take the following form:

12 May 2009
The Committee of European Banking Supervisors (CEBS) today publishes its statement on stress testing exercise.

– Supervisory authorities in the EU are, in the context of their regular risk assessment of the financial sector, carrying out an EU-wide forward looking stress testing exercise on the aggregate banking system.

– This is not a stress test to identify individual banks that may need recapitalization, as the assessment of specific institutions’ needs for recapitalization remains a responsibility of national authorities.

– This test builds on common scenarios and guidelines developed by the Committee of European Banking Supervisors (CEBS).

– The objective is an EU-wide exercise with common guidelines and scenarios, so as to increase the level of aggregate information among policy makers in assessing the European financial system’s potential resilience to shocks and to contribute to the convergence of best practices in the EU.

– CEBS’ next regular risk assessment will be ready by September 2009. The outcomes are confidential.

They don’t seem to be in a lot of hurry, nor do they seem to take this very seriously as their choice of words reveals. If that’s an exercise, how does the real thing look like?
Also the fact that not the individual institutions but the banking system as a whole (aggregate) will be tested doesn’t infuse one with much confidence either. Apart from the fact that we find it difficult to test the system without assessing the health of at least the most important institutions, i.e. the ones with the largest balance sheets,  we also think that the result should be shared and not be declared confidential. This would seem rather obvious if the goal would be to improve the confidence in the market.