FRANKFURT, Germany (AP) — European authorities will put banks through a test scenario that envisions plunging stock and bond markets and a steep loss of a full 7 percentage points of growth over three years.
The stress tests are aimed at weeding out shaky banks so financial institutions can better support growth and jobs in an economy that's suffering from weak lending.
The European Banking Authority said Tuesday banks will have to maintain adequate financial buffers even if growth falls well short of official predictions through 2016. Banks that flunk could have to ask investors for more capital, or cut back dividends or bonuses.
The scenario envisions output falling 0.7 percent this year instead of growth of 1.5 percent and a drop of 1.5 percent next year instead of growth of 2 percent.