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Stressed By Brexit?

05 November 2018 by lberuti

Late on Friday, the Eu’s banking watchdog – the European Banking Authority - published results for its toughest stress tests since 2009, when it began the exercise in order to identify capital deficiencies and avoid any repeat of the government bailouts triggered by the 2008 financial crisis. These tests assume scenarios with shocks such as years of negative economic growth, weak bank profitability, a sell-off in government bonds and real estate, against a backdrop of political and Brexit uncertainty. They have no pass or fail grade but offer investors the ability to see how each of the 48 institutions involved fares relative to its peers. People keep a close eye on them because they help supervisors determine if banks need to raise more capital, sell risky assets or curb their dividend. While all the banks had enough capital to withstand even the harshest outcomes, BACRPLC ( Barclays Plc ) and LLOYDSGR ( Lloyds Banking Group Plc ) unexpectedly came in among the worst performers. Even if both banks declared that they are comfortable with their current capital position, their risk premia came under pressure today and they were the laggards in the financial sector.