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The publication of the stress test results for European banks has been one of the most keenly awaited events of the year. The perceived fragility in the banking sector has made a significant contribution to the recent bout of volatility in the financial markets. Investors have become increasingly concerned that bank balance sheets are vulnerable to shocks – a reasonable assumption given the tumultuous experiences of the past three years. In response, the Committee of European Banking Supervisors – a body within the European Union - has conducted stress tests on 91 banks. The results will be published at 17:00 CET.
Whether the tests produce the cathartic effect that we saw last year in the US remains to be seen – for an exercise in transparency the process has been remarkably opaque. But bank spreads have been tightening in recent weeks amid tentative optimism that the tests will ease concerns about balance sheet weakness, at least for the near time being.
This report doesn’t indulge in conjecture on what banks are likely to fail the tests. It outlines the performance, country by country, of the selected banks in the CDS market, the most reliable barometer of credit risk.
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