Cyprus Mail

Banks brace for first ‘stress test’ hurdle next week

By Angelos Anastasiou

DELIBERATIONS between the European Central Bank (ECB), the Central Bank of Cyprus (CBC) and local commercial banks as part of finalising the results of the ‘stress test’ will commence next week, news reports said yesterday.

The test is a simulation exercise aimed at establishing the Eurozone banking system’s capacity to absorb and survive economic shocks, and will place all systemic banks in the region – 124 in number – under the microscope to identify any additional capital-raising requirements by the end of October.

The plan is to publish the test’s results by the end of October, ahead of the scheduled implementation of the Single Supervisory Mechanism – which would transfer supervision authority for the Eurozone’s 6,400 banking institutions from national central banks to the ECB – on November 4.

Minimum capital requirements for participating banks have been set at 8 per cent for the test’s basic scenario, and 5.5 per cent for the adverse scenario.

A Eurozone-wide Asset Quality Review (AQR) has already been concluded, and the ECB is in the process of incorporating the results with the stress test conducted by the ECB, in collaboration with the European Banking Authority – a process termed ‘join up.’

The join up is expected to finalise capital-raising requirements for individual banks – Cypriot participating banks are the Bank of Cyprus, Hellenic Bank, the Co-operative Central Bank and Russian Commercial Bank.

Sources cited by the Cyprus News Agency (CNA) said a dialogue will commence next week between the ECB, CBC and local participating banks, lasting until the end of October, at which point the test’s results will be published.

While the dialogue was described by the source as aiming to “settle certain pending issues,” a recent Wall Street Journal story had Eurozone officials saying that over the coming weeks ECB officials would be sharing preliminary stress test results with commercial banks, thus giving them a chance to cover any capital shortfalls or spot any inaccurate calculations ahead of publication of the test results.

Once the test results are announced by the ECB, Eurozone banks found in need of additional capital will be required to submit a viable capital-raising plan within 15 days.

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