EU’s bank stress test was too easy on lenders, auditors say

The European Court of Auditors joined regulators in questioning the value of the EU’s bank stress test, saying last year’s exercise should have been tougher and more consistently applied across the bloc.

The scenario simulated by the European Banking Authority, the EU’s top banking regulator, was milder than the 2008 financial crisis, according to an ECA report published on Wednesday. The intensity also varied significantly from country to country, the ECA said.

“European banks should have been tested against more severe financial shocks,” Neven Mates, who was responsible for the report, said in a statement. “Moreover, key decisions at the EBA are taken by representatives of national supervisors and an EUwide perspective was not sufficiently taken into account in the way the test was designed and conducted.”


The EBA health check simulated heavy credit losses and other Brexit-related fallout, with Barclays Plc seeing its key measure of financial health sink to the lowest among the 48 lenders assessed. While the test has no pass or fail grade, the results matter because they help supervisors determine if banks need to increase their capital, and what level of shareholder dividends and staff bonuses they can pay out. The system has been criticised by regulators themselves. Andrea Enria, who heads banking supervision at the European Central Bank, said last year that the “decoupling” of stress-test results and supervisory actions is the main shortcoming.

The EBA told auditors that it will consider their recommendations “as part of the ongoing discussion on possible longerterm changes to the EU-wide stress test,” according to the report.