EU’s 2018 bank stress test considered too mild

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Last year’s European Union bank stress test did not appropriately reflect systemic risks, EU auditors said on Wednesday, a shortfall that may have produced misleading results for some lenders, especially those in weaker states.

The European Banking Authority (EBA) found that none of the 48 banks it tested last year failed a major capital threshold, in what was seen as a positive outcome for the bloc’s banking system which is still recovering from a decade-long financial crisis.

But the European Court of Auditors, which is responsible for evaluating EU policies, said in a report on Wednesday that the EBA may have been too soft in assessing banks’ health, raising concerns about the way lenders’ risks are monitored by EU supervisors.

In response to the auditors’ findings, the EBA defended its risk-assessment methods but said it would reconsider how it selected banks to take part in future tests, with the next due in 2020.

The auditors said last year’s test was based on scenarios that were less serious than the 2008 financial crisis and was also milder for countries with weaker economies. Many smaller banks were spared from the 2018 stress test and only those in 15 of the 28 EU countries were assessed, the auditors pointed out.

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