The European Court of Auditors (ECA) 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.
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.
“Moreover, key decisions at the EBA are taken by
representatives of national supervisors and an EU-wide 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 ECB, said that the “decoupling” of stress-test results and supervisory actions is the main shortcoming.