European Banking Stress Test Features Mild ‘Adverse Scenario’

The Committee of European Banking Supervisors (CEBS) released the much anticipated results of the EU wide banking stress test exercise this afternoon. Seven banks failed the stress test and will require a combined total of €3.5 billion of new capital. The results are being met with some skepticism regarding the nature of the “adverse scenario” used by the examiners as well as the fact that the stress tests do not explicitly account for the possibility of sovereign default. In light of the uncertainty in the overall economy as well as the situation in Greece, the stress tests may fail to provide much reassurance regarding the stability of Europe’s banking sector.

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