ECB Made Major Stress Test Adjustment After Banks Took Rosy View (BBG Sources)

The latest BBG source report notes that “the European Central Bank made one of its most forceful interventions to date in its stress tests for banks, after lenders took what it viewed as an unrealistic approach to assessing risks to their balance sheet.

• People familiar with the matter told BBG that “banks, which are being asked in the tests to calculate the impact of specific economic scenarios, initially estimated their total capital ratio would decline by about 3.5 percentage points in a worst case. The ECB subsequently adjusted the figure, leading to an impact of about 5 percentage points in the final results.”
• The people went on to note that “while it’s standard procedure for the ECB to challenge submissions by banks, the relative effect of this year’s so-called quality assurance phase is larger than in several previous tests.”