The CEBS (Committee of European Banking Associates) has claimed that the European banking stress tests are more severe than the U.S. tests, according to CNBC.
The tests involve a “double dip scenario” for the European economy that is deeper and more drastic than that applied during the U.S. banking stress tests. This includes a 6% increase in unemployment, according to CNBC’s Simon Hobbs.
Economies were assumed to shrink by 3% over 2010 and 2011 and equities fall 20% each year, according to The Guardian.
Banks were deemed “failing” if they could not maintain a tier 1 capital ration of 6% under each stress test scenario, according to The Guardian.
Earlier, it was announced that sovereign debt defaults would not be included in the test, and that only sovereign debt on bank’s trade books, rather than the debt they intended to hold to maturity, would be included in the tests.
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