British banks have shown the worst results in the latest European banking stress test. German and Italian banks are also hard to come by. The European Banking Supervisor has developed a test scenario with a severe economic recession of the European Union (EU) that lasts until 2020.
European Banking Supervisors conducted this stress test from January to October and tested 48 of the largest banks in Europe. Bank of Latvia is not among them. This scenario describes a severe recession – with a decline of more than 8%, with Brexit being one of the driving forces, or a UK withdrawal from the European Union.
In general, it is estimated that bank stress has increased since 2008, but most European banks are the worst for Britons –
Lloyd's, Barclay's Banks and Royal Bank of Scotland. The Banking Stress Scenario also predicts the worst situation in the UK economy. However, Germany's "Deutche Bank" and several regional banks will suffer greatly – for example, in the worst-case scenario the payment of dividends will stop and instead increase the adequacy of equity capital.
Some banking experts have shown – surprisingly, Italian banks have shown relatively good results. But it was explained that the test did not include the latest situation in the Italian economy.
No bank underwent a stress test. Previous stress tests were conducted two years ago and now it seems that banks are more resistant to macroeconomic shocks.
The results of this test will help banking supervisors decide whether to require these banks to increase their capital adequacy to protect themselves from potential losses.