Bank stress tests

Bank stress testing
This test is an analysis taken through unwanted economic scenarios that serves to determine whether a bank has enough capital needed to survive a possible impact of adverse ongoing. These tests can be conducted by banks internally, as a part of their own risk management, or it can be conducted by authorities as a part of regulatory oversight of the banking sector. These bank stress tests are supposed to discover possible “holes” in the system before they crack open and cause more damage.
Stress tests pay attention on some major risks. Those are credit risks, market risks and liquidity risks in critical situation. These tests became more noticeable in 2009 after many banks were left under-capitalized after the global financial crisis.

European bank stress test results 2014

One bank that nobody would think would fail a stress test is the world’s oldest bank, Monte dei Paschi di Siena. It has become a bank with the biggest shortfall with €2.1bn “missing”.
It is one of the nine banks situated in Italy to fail the stress test that was conducted by the European Banking Authority. 123 banks across the EU were tested, and 24 banks failed.
The EBA has based their results on the banks’ positions at the end of 2013. Italy’s central bank claimed that its banks underwent very unfavorable tests which were only assumption that a deep recession would strike through 2014-2016, after a real one has strike Italy in 2012-2013, which was a successor to the one 2008-2009.
The bank of Italy still continued to trust its banks and it pointed out the belief in the strength of the banks.
Analysts issued warnings about the Italian bond market, because the stress tests results indicate that the fact that many Italian banks failed the tests could put the Italian government bond market under pressure.

See full report bank stress test results