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European banks face tougher stress tests

By Bloomberg News
July 9, 2011

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LONDON - European regulators will try to end the region’s banking crisis by forcing firms to publish details of capital shortfalls in a more stringent and detailed set of stress tests that will give firms six months to plug any gaps.

Lenders will be made to disclose capital levels, estimates for profitability in 2011 and 2012, as well as their holdings of sovereign debt in the July 15 tests, the London-based European Banking Authority said.

European regulators are seeking to assuage investor concern that banks in the region are inadequately capitalized with a second round of stress tests. The banking authority toughened this year’s review by tightening its definition of bank capital and forcing firms to disclose more about their holdings of government bonds.

Banks will list their exposures to commercial real estate, residential property, corporate lending, and sovereign debt by country, according to the template for the results published yesterday. The tests won’t include a sovereign default.