EU banks to face tough new stress tests as Brussels braces for Brexit
EUROPEAN banks will have to undergo a series of new “stress tests” next year as Brussels braces for the impact of Brexit.
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Large financial institutions on the continent will face a series of tough tests by the European Banking Authority to make sure they can cope with an economic downturn.
The European Banking Authority is introducing the programme for main banks across the bloc from January until October next year.
It will examine a raft of priority areas including risk management and the firms’ business models and profitability.
And the European Central Bank (ECB) will conduct additional tests on other institutions as it looks to ramp up its scrutiny.
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In a document published this week, the ECB made clear Brexit was high on its agenda for 2018.
It warned: “The focus of activities will shift from preparatory work to the practical implementation of policy stances developed.
“The ECB will continue to assess banks’ plans to relocate activities from the United Kingdom to the euro area, including applications for the granting of banking licences.
“The United Kingdom’s withdrawal from the European Union also impacts a number of significant institutions headquartered in the euro area.”
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The announcement came as the EU warned big foreign investment banks faced a tougher regulatory regime and would be brought under the direct control of the ECB.
Investment banks trade stocks, bonds, currencies and derivatives on behalf of customers, activities that have traditionally been supervised by market regulators rather than a central bank.
But the European Commission is proposing bringing big investment banks with assets of over 30 billion euros under the tougher supervision faced by lenders who take deposits.
At the same time it will ease regulations on small investment firms, which account for the bulk of 6,000 investment firms currently authorised.
The big investment banks are largely concentrated in the UK, but are shifting parts of their operations to elsewhere in the EU in order to maintain links with customers there after Brexit.
European Commission Vice President Valdis Dombrovskis said: “The new rules will support well-functioning capital markets, while ensuring financial stability.
“At the same time, larger firms posing similar risks as banks should be regulated and supervised like banks.”
(Additional reporting by Maria Ortega.)
