When the EBA last ran stress tests back in 2014 it examined 124 banks. This time it is only looking at 51 of Europe’s largest financial institutions, with no Greek and Portuguese banks among them.
Of those 51 banks, only Monte dei Paschi di Siena failed the 2014 test in full. The Italian bank has stolen most of the headlines this week, but you don’t need a stress test to expose its weaknesses — they have been apparent for some time.
However the EBA said that those banks covered this year will be facing tougher tests. It has added extra conduct costs and front-loaded a number of shocks under its adverse scenario.
The changes ensure that 50 of the banks taking part aren’t simply going through the same motions when, with less capital, they passed the tests two years ago.
But the methodology is far from perfect. Negative interest rates — one of the biggest challenges to profitability for European banks — are featured only among shocks to assets held in trading books.
The icing on the cake is that the results will be much harder to understand, given there is no pass/fail threshold. It will even be difficult to relate them to the EBA's Supervisory Review and Evaluation Process, because the ECB’s new Pillar 2 guidance is yet to be quantified as a proportion of each bank’s existing capital requirements.
UniCredit CEO Jean-Pierre Mustier summed it up perfectly in an interview with Corriere this week. When asked what he was expecting from the latest stress tests, his response was extremely brief: “nothing in particular”.