On the surface, it appears none of the participants in the next round of European-wide bank stress tests will make fools of themselves.
The continent’s top regulators – the European Banking Authority and European Central Bank – will put 53 financial institutions in the European Union through their paces early next year, inspecting their balance sheets for risks and asking whether they really have the tools needed to withstand a future financial crisis.
It will mark the first pan-European test since 2014, when the EBA and ECB tested about twice as many banks in Europe in a much bigger – and novel – exercise.
But as the EBA announced Thursday, in contrast to past tests, this time banks won’t be judged on whether their reserves can hold up in times of serious stress – a financial crisis, for example. There will not be a minimum threshold banks have to pass. In other words, they can’t really fail.