TWO Cypriot banks will be included in the stress tests of 91 banks, which will determine whether they are in the position to absorb possible crises; the Bank of Cyprus and the Marfin Popular Bank.
The stress tests will be completed on July 23 and, in addition to the two Cypriot banks, it will include the National Bank, the Eurobank, the Alpha Bank, the Piraeus Bank, the Agricultural Bank and the TT Hellenic Postbank from Greece.
The objective of the Committee of European Banking Supervisors (CEBS) extended stress test exercise is to assess the overall resilience of the EU banking sector and the ability of the banks to absorb further possible shocks on credit and market risks, including sovereign risks, and to assess the current dependence on public support measures.
“The exercise is being conducted on a bank-by-bank basis using commonly agreed macro-economic scenarios (baseline and adverse) for 2010 and 2011, developed in close cooperation with the ECB and the European Commission”, the CEBS’ statement said.
“The macro-economic scenarios include a set of key macro-economic variables (e.g. the evolution of GDP, of unemployment and of the consumer price index), differentiated for EU Member States, the rest of the EEA countries and the US. The exercise also envisages adverse conditions in financial markets and a shock on interest rates to capture an increase in risk premia linked to a deterioration in the EU government bond markets”, it added.
On aggregate, the adverse scenario assumes a 3 percentage point deviation of GDP for the EU compared to the European Commission’s forecasts over the two-year time horizon.
In each EU Member State, the sample has been built by including banks to cover at least 50% of the national banking sector, as expressed in terms of total assets. For the EU banking sector as a whole, the 91 banks represent 65% of the EU banking sector.
The Committee of European Banking Supervisors (CEBS) is composed of high level representatives from the banking supervisory authorities and central banks of the European Union.
CEBS was mandated by the ECOFIN, in December 2009, to coordinate a second EU-wide stress testing exercise of the banking system, which was extended by the EU Council in June.
View the CEBS’ statement on key features of the extended EU-wide stress test.
Let’s hope that the CEBS ask why the Bank of Cyprus and others have and are giving property developer’s second mortgages on land for which they have already given mortgages to individual property purchasers and vice versa.