ECB plans more stress tests to ward off bank crises

The ECB plans to use further stress tests as part of its effort to ward off any future banking crises in the eurozone, a high-level official said yesterday.

The ECB directly supervises the eurozone’s 123 largest lenders, while smaller banks remain under the purview of national supervisors. It put lenders through hypothetical stress scenarios last year as part of an assessment of banks’ financial health, before taking overall responsibility for banking supervision in the eurozone in November.

“The stress testing will be part of the supervisory activities in the future, for sure, in some form or another,” said Jukka Vesala, an ECB director general.

The ECB is taking a close look at the viability of big banks’ business models and strategy in meetings with executives and risk officers as part of its supervisory examination programme (SEP), which includes on-site inspections and investigations of banks’ internal models as well as regular inspection by multi-country supervisory teams, Vesala said. The ECB is meeting executives “as frequently as possible”. The “discussions are formalised under the SEP plan”, he added.

A radical plan for Deutsche Bank to become a pure investment bank and corporate lender was dropped after ECB stress tests concluded the model would not withstand a severe financial crisis. Germany’s largest lender ultimately opted for a less radical restructuring.

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