School of Economics, Business Administration and Legal Studies, Executive MBA
This report is a methodical approach of the banking stress tests which were exercised in June 2010 to European banks by the Committee of European Banking Supervisors (CEBS). This test focuses mainly on market and credit risks as well on sovereign debt exposure of European banks. It also checks the European banks for capital adequacy.
This reports starts with familiarize the reader with the flow of the project, what is going to be done, the aims and objectives. Briefly it can be stated that the report overall explains how exactly the test were exercised by CEBS and it presents and critically discusses the results of the exercise.
The report continuous with a general description of the stress test worldwide; why stress test have become necessary in today‟s financial world and what micro and macro implications the cause.
In addition the reader is offered a lot of interesting Literature Review which offer various streams of thinking of very noticeable authors and economic magazines. Due to the fact that the topic of the report is very recent only economic articles are provided.
The report goes on by seeing in dept the CEBS stress test procedure. The participating banks are presented, the benchmark and adverse scenario, the probabilities of default and loss given default, as well as sovereign bond haircut. At the same time table illustrated results on country levels are offered and discussed.
To go on the result of the CEBS stress test are discussed and which banks failed. The Tier 1 capital ratio which is indicated for banks‟ capital adequacy is also introduced. Furthermore an interpretation is given what these results mean for the European and especially for the Greek banking system.At the closure of the report critique is given about the necessity and the objectivity of the CEBS banking stress test in June 2010 and suggestions of improvements are given. Furthermore at the back, the report is enriched with the references used to utilize the work as. Next to the references Appendixes are provided, with a lot of tables which are discussed throughout the project and give the reader plenty information for better understanding the content.