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EU Banks Call For Clearer Communication For This Year’s Stress Test

February 13, 2011 by · Leave a Comment 

There’s no doubt that banks in the European Union are anything but sound as there are regular yearly checks that have been put in place to determine their health. Also know as a “stress test”, the last year’s test only saw Irish banks being able to pass the demands that were made, only to be rescued later.

And yet the markets considered this test to be one that resulted in failure due to the lack of communication between them and officials from the European Commission, European Central Bank and regulators from various European Union states.

And this lack of communication as to the methodology used to ascertain whether banks was in good health or not was the reason why markets were completely in the dark until the results were declared, and even causing the regulators’ website to crash due to the number of people trying to download the final report.

However, Simon Lewis, who is the chief executive for the Association of Financial Markets in Europe, said that if they were able to not only identify the methodology that they were using this year clearly, and were able to provide these details early, it would give the markets time to respond appropriately.

And while the tests will be tougher this year, according to regulators, that will not only test liquidity but also impose bigger losses on holdings of government bonds, the markets remain convinced that a lack of surprise along with being able to set a specific date for the release as well as specifying what will be released as well will help them meet the requirements of most stringent stress tests.

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