According to reports, European banking regulators will weaken parts of the bank stress tests which were created to raise investor confidence in the banking sector. Boston University law professor Cornelius Hurley, Director of BU’s Center for Finance, Law & Policy (formerly the Morin Center for Banking and Financial Law) and a former counsel to the Fed Board of Governors, offers the following comment:
“Early indications are that the European Banking Authority’s stress tests will be watered down in terms of Tier 1 capital and stress scenarios. When the purpose of stress testing is to restore market confidence, incredulous stress tests are worse than no tests at all.
“Is it a lack of will at the EBA that is the problem or is it a structural defect caused by the EBA not having the authority to enforce standards across twenty independent countries?”