‘Reverse’ stress tests for banks

Brussels: Lenders in Europe face reverse stress tests under proposals from European regulators to toughen the scenarios used in examining banks’ financial stability.

The Committee of European Banking Supervisors said banks should carry out the reverse stress tests, where firms identify scenarios that may threaten their solvency.

Last month, 91 banks were examined on their resilience in the event of a shrinking economy and a drop in government bond values. The tests were criticised for not being stringent enough because European banks were shown to need only €3.5 billion of new capital, about a tenth of the lowest analyst estimate.