ZEW Banking Expert Karolin Kirschenmann on the EU-Wide Stress Test

On 30 July, the European Banking Authority (EBA) published the results of the stress test it carried out on 50 banks in the euro area. Dr. Karolin Kirschenmann, deputy head of the “International Finance and Financial Management” Research Department at ZEW Mannheim, explains:

“Unsurprisingly, the calculated capital depletion of banks in the current stress test is larger than in 2018, as the EBA confronted banks with a very challenging scenario this time, which also took into account governments’ coronavirus-related aid measures. By simulating a prolonged COVID-19 pandemic in an environment of continued low interest rates, the review of the European banking system gains validity. It is also positive that euro area banks have improved their capital adequacy since the financial crisis, having thus become more resilient. This year’s stress test is particularly significant for the banks, as the ECB will use the results from the challenging scenario to calculate bank-specific capital surcharges. This helps banks to make more realistic plans.”