Ease up on Europe’s banks or more will fail tests

EUROPE’S bank stress tests need a higher pass mark. Last year’s flop demanded that lenders only need 6% Tier 1 capital in a stressed scenario — a hurdle that all but a handful were able to clear.

To make the latest test more credible, regulators should ideally switch to core Tier 1 capital. If that’s not possible, they should raise the bar.

Regulators are making some improvements. The draft scenario for the tests — sent to lenders on March 4 — assumes a bigger economic contraction than in previous years.