Comparison of EU-wide bank stress test results for the years 2009, 2010 and 2011

Abstract

This dissertation discusses the EU-wide stress tests that were carried out in 2009, 2010 and 2011 by CEBS/EBA. The main objectives of this study are to compare the methodologies used and results obtained in these tests. The third objective is to try and answer the question as to whether these stress tests should continue to be carried out on an EU-wide basis. The main motivation behind this study is to try and fill the gap in literature regarding these specific stress tests. Although some papers do comment about these stress tests, whilst carrying out research for this dissertation I did not come across any papers that compared the results of these tests. The main comparisons were drawn between the results of 2010 and 2011, since CEBS in the 2009 results only published a general statement that all banks passed the tests under both baseline and adverse scenarios and did not give details of the methodology that it used nor the banks that participated. The methodologies and results between the 2010 and 2011 tests did not defer a lot from one year to the other. One can say that in both years half of the banks passed, approximately 40% of the banks marginally passed and less than 10% of the banks failed. Whilst these results show that half of the European banks are well capitalised the other half need to restructure their finances to be able to gain back investors confidence and also to be able to overcome another financial crisis. These results have to also be seen from the perspective that some of the banks were receiving government support whilst these tests were being conducted and this support was factored in these tests.