ECB to Test How Long Banks Can Last Without Fresh Funds

Eurozone banks are set to be tested on how many days they can last without a fresh injection of liquidity, under a new exercise designed by the region’s financial supervisor, the Financial Times reported. The European Central Bank, which supervises the eurozone’s largest lenders through its Single Supervisory Mechanism arm, said on Wednesday that it would launch a “sensitivity analysis” to judge how banks would handle an “adverse and extreme shock” to liquidity. The ECB said the test would focus on a “survival period” measured in days, under which they would assess how long a bank could continue to last using its available cash and collateral but with no access to funding markets. The exercise, which comes after financial markets were roiled in December by fears about a global trade war and the pace of US interest rate rises, is set to be completed in June. It is not expected to affect rules on capital or liquidity. A liquidity crunch was a key cause of the 2008 global financial crisis. Read more