Criteria for bank stress tests revealed

Irish banks will have to prove they can withstand another slump in property prices, a surge in unemployment, and sclerotic growth over a three-year period as part of the EU-wide stress tests later this year.

The European Banking Authority (EBA) has unveiled the criteria for the stress tests. They include a 21.2% slump in house prices as well as 14.7% in commercial real-estate prices. Economic output would fall by 2.1% and unemployment would once again creep back up. The banks will also be tested for a sell-off in each country’s sovereign debt.

“The exercise’s full transparency will be key to its credibility,” said Andrea Enria, chairman of the EBA. The stress tests will form a “robust and effective tool for supervisors to address remaining vulnerabilities in the EU”. They will cover 124 banks across the EU.