So it looks to be semi-official. The “stress test” label, in Europe as in the US, signifies an exercise that is designed to produce attractive report cards, as opposed to provide a valid measure of the sturdiness of a bank’s balance sheet in difficult conditions.
So what is the biggest concern investors and counterparties have about European banks? Sovereign risk exposure. So what do the ECB stress tests apparently exclude? Sovereign risk exposure.
Deutsche Bank AG, Commerzbank AG and Bayerische Landesbank passed a stress test that evaluated how about 25 European lenders would weather an economic downturn, said three people familiar with the results.
The three German lenders’ tier 1 capital ratio, a key measure of financial strength, exceeded a threshold of 6 percent under the economic scenario, said the people, who declined to discuss the performance of banks outside Germany. The tests didn’t include sovereign debt, two people said.