LONDON (MNI) – The following is a statement issued Wednesday by
the Committee of European Banking Supervisors providing further
information on the EU-wide stress test exercise
which is now being finalised by CEBS and the national supervisory
authorities, in close cooperation with the ECB:

The objective of the extended stress test exercise is to assess the
overall resilience of the EU banking sector and the banks’ ability to
absorb further possible shocks on credit and market risks, including
sovereign risks, and to assess the current dependence on public support
measures.

The exercise is being conducted on a bank-by-bank basis using
commonly agreed macro-economic scenarios (baseline and adverse) for 2010
and 2011, developed in close cooperation with the ECB and the European
Commission.

The macro-economic scenarios include a set of key macro-economic
variables (e.g. the evolution of GDP, of unemployment and of the
consumer price index), differentiated for EU Member States, the rest of
the EEA countries and the US. The exercise also envisages adverse
conditions in financial markets and a shock on interest rates to capture
an increase in risk premia linked to a deterioration in the EU
government bond markets.

On aggregate, the adverse scenario assumes a 3 percentage point
deviation of GDP for the EU compared to the European Commission’s
forecasts over the two-year time horizon. The sovereign risk shock in
the EU represents a deterioration of market conditions as compared to
the situation observed in early May 2010.

The scope of the stress testing exercise has been extended to
include not only the major EU cross-border banking groups but also key
domestic credit institutions in Europe. The banks that have been
included in the exercise are

listed in the Annex. In each EU Member State, the sample has been
built by including banks, in descending order of size, so as to cover at
least 50% of the national banking sector, as expressed in terms of total
assets. For the EU banking sector as a whole, the 91 banks represent 65%
of the EU banking sector. Banking groups have been tested on a
consolidated level. This means that subsidiaries and branches of an EU
cross-border banking group have been included in the exercise as a part
of the test of the group as a whole.

The results of the stress test will be disclosed, both on an
aggregated and on a bank-by-bank basis, on 23 July 2010.

It should be noted that a stress testing exercise does not provide
forecasts of expected outcomes, but rather a what-if analysis aimed at
supporting the supervisory assessment of the adequacy of capital of
European banks.

Background

The Committee of European Banking Supervisors (CEBS) is composed of
high level representatives from the banking supervisory authorities and
central banks of the European Union. CEBS’s main tasks are to advise the
European Commission in the field of banking activities, to contribute to
the consistent implementation of Community Directives and to the
convergence of supervisory practices, and to enhance supervisory
co-operation.

CEBS is also mandated to perform and provide regularly to the
European Commission and other EU institutions, forward-looking
assessments of micro-prudential trends, potential risks and
vulnerabilities in the banking sector, conducted on a bottom-up basis
and based notably on the information gathered from colleges of
supervisors.

CEBS was mandated by the ECOFIN, in December 2009, to coordinate a
second EU-wide stress testing exercise of the banking system, which was
extended by the EU Council in June.

** Market News International London Bureau **

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