EU lenders await 'stress test' bank results

Shares across Europe rose yesterday amid hopes that most of the continent's 91 top banks will pass EU-mandated 'stress tests'. The markets' optimism came despite scepticism about the value of the exercise.

The British banks that took part - HSBC, Barclays, Royal Bank of Scotland and Lloyds Banking Group - are all expected to be given passes today when the results are published by the Committee of European Banking Supervisors (Cebs).

They have already been through tests, designed to gauge ability to withstand economic trouble, imposed by the Financial Services Authority, which are believed to have been far tougher.

The biggest concerns relate to institutions on Europe's southern fringe, notably Spain's Caja savings banks.

However, Nic Clarke - a banking analyst at Charles Stanley - said: "We are worried that these tests are not going to do what they are supposed to do and just hand out passes. When the US did this exercise it was very effective because 10 out of 19 banks failed and it was taken for granted that they would need to raise more capital. That was what they did."

Richard Barfield, a director at PricewaterhouseCoopers, said: "For a stress test to be an effective test, then we should expect some of the 91 banks to fail - otherwise, where is the stress?

"However, it is important to remember that these are hypothetical scenarios to inform understanding of risk in the system. The key thing is not how many pass or fail, but what lessons are learned and what actions are taken."

- THE INDEPENDENT