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Many large European banks are emerging from early rounds of a key stress test in robust financial health, prompting some regulators to question whether to push harder at a time when investors are focused on the industry’s resilience.
Initial submissions to the European Banking Authority’s biennial assessment show several lenders’ capital ratios are higher than in previous exercises under the so-called adverse scenario, people with knowledge of the matter said, asking to remain anonymous as the submissions are private. That’s prompting the EBA and European Central Bank to lean on banks to be more conservative in subsequent rounds of the tests, which are set to conclude at the end of July.
European banks' capital levels are close to highs reached in the pandemic
Source: European Banking Authority
The EBA assessment is a key exam for lenders because it gives insight into their preparedness to weather shocks and also feeds into their capital requirements. Banks, using data from the end of 2022, are tested under an adverse scenario and more benign baseline scenario for the three years through 2025. A clean bill of health strengthens the case for distributing billions of euros of capital to shareholders, even as economic uncertainty increases.
An EBA spokeswoman said it would be speculative to draw conclusions given the assessment is still in progress....
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