The strength of Europe’s banking system is about to be tested against a fictional doomsday scenario that includes a global bond rout and a currency crisis in central and eastern Europe.
The three-year outlook features “the most pertinent threats” to the stability of European Union banks and their potential impact on entire balance sheets, according to a draft European Banking Authority statement seen by Bloomberg News. The EBA is due to release the details tomorrow in coordination with the European Central Bank.
As the ECB prepares to take over supervision of about 130 euro-area lenders from BNP Paribas SA (BNP) to National Bank of Greece SA starting in November, policy makers have chosen to reflect real-world developments like the tensions over Ukraine in a bid for more credibility in the toughest stress tests to date. Similar exercises in 2010 and 2011 were criticized for failing to uncover weaknesses at banks that later failed.