The EU-wide stress test will be conducted on a sample of 51 EU banks covering 70% of the banking sector in the EU and will be run at the highest level of consolidation, the EBA said.

The process for running the exercise will involve close cooperation between the EBA and the competent authorities, including the Single Supervisory Mechanism (SSM), the European Central Bank (ECB), the European Systemic Risk Board (ESRB) and the European Commission (EC).

Results are expected to be published on the third quarter of 2016.

However, Cypriot banks are not in the list of banks that will be tested. Bank of Cyprus, Hellenic Bank and the Co-operative Central Bank banks have recently been subject to the Supervisory Review and Evaluation Process (SREP), which has forced the banks into higher provisions.

The planned checks on other eurozone banks aim to help supervisors evaluate the profitability and sustainability of banks’ business models, come just after the latest bout of turbulence, with banking stocks pounded by market worries about the impact of slowing global growth and low interest rates.

Since the 2007-09 financial crisis that forced taxpayers to shore up many lenders across the EU, regulators have held stress tests nearly every year. Banks had been given a 12-month break from the time-consuming stress tests, which from 2016 will be held every second year, Reuters reported.

No test was held in 2015 after an intensive exercise that also included a review of assets on banks’ balance sheets in 2014 ahead of the European Central Bank becoming the supervisor for the eurozone’s top lenders in November that year.

Italy’s Monte dei Paschi had the biggest capital hole to fill in the 2014 test.

The EBA did not say when the results of this year’s test will be published, but they are not expected to include a pass/fail minimum capital hurdle.

The initial aim of the test was to plug capital gaps, but in future the checks will become a tool for supervisors to make sure banks have a sustainable business model.

Past tests had been criticised for being too lenient, with Irish lenders, for example, being given a clean bill of health just months before the country almost went bust due to their difficulties.

Fewer banks will be tested than in the past, of which 39 are in the eurozone.

EBA executive director Adam Farkas said in November this year’s exercise will test for the first time some banks’ foreign exchange exposure to adverse currency movements.

Daniele Nouy, who heads the ECB’s supervisory arm, said in November she wanted risks from misconduct to be part of the stress test.

Top banks have been fined billions of pounds for trying to rig benchmark interest rates and currency markets.

Source: InCyprus