The European Central Bank announced on Wednesday begin testing the strength of the bigest banks in the Euro zone. The so-called stress tests to take a year and help to restore confidence in the financial sector. This is another step in building a banking union.
The ECB informed that assessment of banks will start in November and will last 12 months. Testing will take care with the ECB national regulators of the Member States participating in the single supervisory mechanism (SSM).
Single Supervisory Mechanism will be the central element of the banking union. The main target of the operation is to improve the stability of the financial sector.
Announced by ECB-depth review of the quality of bank assets will include approximately 130 largest institutions in the euro area. It aims to detect the "problem" loans on the balance sheets of banks in each country. Banks will have to demonstrate that properly classifying our loans and postponed adequate cash to cover you in the event of debts that can not be repaid.
The assessment is based on the EU rules that require banks to maintain capital at 8 per cent. If the tests indicate a shortage of capital, you will need to be supplemented. Test results and conclusions at the level of countries and individual banks to be published in November 2014.
In 2008-2011 the EU issued the equivalent of one third of its GDP on bailing out banks, relying heavily on the money of taxpayers.
Source: Bloomberg, Reuters
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