However, Credit Suisse’s core capital ratio suffered the biggest fall of all the banks tested under the severe stress scenario, eroding by more than 7 percentage points from its starting point. HSBC’s buffer fell the second most, dropping more than 6 percentage points.
This year’s severely adverse scenario saw the economy contract 3.5 per cent, driven in part by a slump in commercial real estate asset values, and the jobless rate jumping to 10 per cent. While the scenarios were devised before Russia’s invasion of Ukraine and a sharp jump in inflation, the tests should reassure policymakers that Europe’s top lenders are resilient enough to withstand a possible recession this year or in early 2023.
The European Banking Authority is scheduled to run its next EU-wide stress test in 2023 but investors are on high-alert for evidence of a fall in asset quality at European banks, as borrowing rates begin to rise from historic lows.
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