Regulator to conduct stress tests on 90 European banks

The EU regulator said yesterday it will carry out stress tests on 90 European banks and will apply tougher criteria in the wake of the bad debts amassed by banks in Ireland.

The tests are designed to reassure financial markets at a time when the eurozone is facing a fresh bout of turbulence, with debt-laden Portugal seeking a multi-billion-euro bailout.

The latest round of stress tests are designed to be more “credible” than assessments done last year which were roundly criticised because they gave most banks – including those in Ireland – a clean bill of health. Some of the banks passed in the last tests have since been swallowed up in mergers after they ran into trouble or have required emergency state support.

The European Banking Authority said Friday it will require banks to hold core capital equivalent to five per cent of their risk-weighted assets in this year’s round of stress tests.

Such core capital has to be held in cash or instruments that can be easily changed into cash, making it easily available in times of need.

Spain has the most banks on the 90-strong list, with 24 to be tested, while 13 German institutions will be examined.

Results of the latest tests are expected in June.