Commenting on the publication of the European banks’ stress test results by the European Banking Authority (EBA), the Association of German Banks (AGB) has argued that the stress tests have not helped to stabilise the markets.
Michael Kemmer, general manager of AGB, said: “The opposite is the case. The arbitrarily set requirement to hold 9% core Tier 1 capital, while at the same time taking account of the risks arising from European government bonds, is very difficult to understand.” This was tantamount to setting aside capital twice to cover possible risks.
“The lengthy and chaotic-seeming process has, in addition, strengthened the impression that any result is possible,” continued Kemmer. A particular problem was the fact that calculation methods and criteria had repeatedly been changed. The EBA had lost credibility as a result.
The markets had been highly unsettled by the EBA, Kemmer went on to say. The results would tend to have a pro-cyclical effect, thus increasing tension in the financial markets. “Adverse consequences – including for the growth of European economies – cannot be ruled out,” Kemmer added. He said German banks had built up massive amounts of capital in recent years and were anything but undercapitalised.
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