The last biannual stress test reflects the change in the macroeconomic environmentSince the Russian invasion of Ukraine helped push inflation in Europe to decade highs and interest rates went up quickly to deal with it.
At the end of July I know will publish the results bank by bank, with no pass or fail grades, which will serve as the basis for annual regulatory assessments of capital buffers. The previous one 2021 endurance test took place in the context of interest rates “low for a long time”.
Details of this test
The EBA said the latest theoretical setbacks test, designed together with the ECB, covers 70 banks of the EU, 20 more than in 2021, which represents the 75% of the block’s total banking assets.
This will be the longest and toughest version of this test done to date. Part of the hypothesis that Russia will cut off gas supplies that the EU has left, which will trigger energy prices and the bloc inflation at 9.7%compared to the maximum of 10.6% registered in the euro zone in October.
“The narrative describes a adverse scenario related to a hypothetical worsening grave of the geopolitical eventsaccompanied by a rising prices of raw materials and the resurgence of contagion COVID-19said the European Banking Authority (ABE) in a statement.
That scenario would cause a GDP drop of 6%a rise in unemploymenta drop in real estate prices, gas supply cutsand persistently high inflation and high interest rates over a three-year period to 2025.
Source: Ambito
