Elderfield urges review of stress tests

Stress tests of European banks should focus less on capital benchmarks and more on “diagnostic tools” next year, one of Europe’s top bank regulators said.

Matthew Elderfield, the deputy governor of the Central Bank and a senior member of the European Banking Authority, said that stress tests that encourage banks into hoarding capital may make economic downturns more severe.

It would be “sensible to recalibrate the European approach to stress testing in the next period,” said Elderfield in a speech in Berlin yesterday.