launch of stress tests for European banks

The European Banking Authority (EBA) launched its stress tests of European banks on Tuesday, with a scenario that includes a “severe worsening of the geopolitical situation”, “a rise in commodity prices” and a “resurgence of Covid-19”. 19”.

Regarding the Ukrainian conflict, the institution is counting, for example, on the fact that supplies of Russian gas to Europe will not resume.

Compared to previous exercises, the EBA’s 2023 scenario is more severe with a cumulative drop in European GDP of 6% between the starting point and a three-year horizon, detailed in a document by the European Banking Authority, which will publish the result of the financial year at the end of July.

In the previous scenarios, the cumulative recession was 3.6% in 2021 and 2.7% in 2018.

Regarding employment, the EBA assumes a 6.1 point rise in the unemployment rate, while inflation decreases more slowly than expected. Regarding residential and commercial real estate, prices would fall by 21% and 29% respectively over three years.

As for the financial markets, the scenario evokes a fall in equities of 55% in 2023, before rising slightly by 2025.

Finally, the banks will have to measure the risks linked to their credits, while certain sectors of activity could suffer more than others.

The adverse scenario, although unlikely, is used to assess the resilience of banks (…) a significant deterioration in the outlook for the global economy and financial markets in the next three years, explains the EBA.

A total of 70 institutions will take part in this exercise, 20 more than in 2021, covering approximately 75% of banking assets in the European Union.

During the previous exercise, which takes place every two to three years, the European Banking Authority estimated that the sector was able to withstand a serious economic crisis without too much damage.

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