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The 2014 EU-wide Bank Stress Test Lacks Credibility

In: TRADE CURRENCIES AND FINANCE

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  • Morris Goldstein

Abstract

Results from last month’s EU-wide stress test are reassuring, especially for countries at Europe’s core. This column warns against a rosy interpretation. The test relies on risk-weighted measures of bank capital ratios that have been shown to be less predictive of bank failure than unweighted leverage ratios— a metric already adopted by the US Fed and Bank of England. In addition, many experts recommend much higher leverage ratios than currently required. The ECB must do more to fix undercapitalisation.

Suggested Citation

  • Morris Goldstein, 2017. "The 2014 EU-wide Bank Stress Test Lacks Credibility," World Scientific Book Chapters, in: TRADE CURRENCIES AND FINANCE, chapter 14, pages 503-508, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814749589_0014
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