New stress tests require bank capital ratio of 5.5%

European Union banks face their toughest probe yet in a bid to weed out the sector’s weaklings, the bloc’s chief watchdog said yesterday, announcing stress tests intended to help draw a line under the financial crisis.

More than half a decade since the start of the 2008-09 credit crunch, and despite more than €1 trillion of state support, confidence in the sector remains fragile and the EU’s latest health checks are intended to settle any lingering doubts over its finances.

The European Banking Authority (EBA), the EU watchdog coordinating the tests, said yesterday that to pass, banks must have a core capital ratio of above 5.5% during the three-year stressed scenario, including above 8% at the starting point.