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European banks to undergo “stress tests”

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by Kay Mitchell

Marek Belka, the International Monetary Fund’s (IMF) Europe director, is calling for European banks to undergo “rigorous stress tests” like those carried out in US banks.

According to Mr Belka, “Europe is facing the economic storm of a lifetime and it urgently needs to weatherproof its institutions.”

As a consequence, Mr Belka is urging European Governments to follow the lead of the US and conduct “stress tests”. Such tests would help restore confidence to the banking sector and get banks to come clean on losses, said Mr Belka.

The recent stress tests on 19 US banks were carried out by the Federal Reserve to establish which financial institutions are in a position to weather the downturn.

It was established that ten of the 19 banks tested require a total of $74.6 billion (£50 billion) in extra capital to cover future losses.

Returning to the euro zone economies, Ireland has been hit the hardest with its economy expected to contract by 8% this year.

However, Estonia, Latvia and Lithuania will see their economies contract by over 10%.

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News posted: May 12, 2009

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