Top European banks are being asked to prove that they could survive turmoil in the financial world. <br /><br />The European Banking Authority has released details of its plans to check the resilience of 124 lenders.<br /><br />The idea is to find out how they would cope with simultaneous slumps in government bonds, property prices and share markets. <br /><br />The results will be published in October. <br /><br />The toughest test to date by the EU watchdog is aimed at restoring confidence in the banking industry which had to be rescued by taxpayers during the financial crisis.<br /><br />Over a three-year “stress test” period – a year longer than in the previous exercise – banks must show they can cope with a cumulative loss of 2.1 percent in economic output.<br /><br />That is much worse than the 0.4 percent decline in the last such test.<br /><br />Such a poor economic performance would push up unemployment to 13 percent and send house prices down 20 percent on average, triggering defaults on loans held by the banks, the EBA said.<br /><br />EBA Chairman Andrea Enria explained full transparency will be key to the credibility of the exercise: “It will show how efforts recently undertaken by EU banks are already bearing fruit and it will provide a common framework for the next steps to be taken by supervisors and banks.”<br /><br />European insurers will face similar checks.<br /><br />This all part of the response to market criticism that the EU has not been as robust in its response to the financial crisis as the United States.<br /><br />with Reuters
