EU Stress Tests Are ‘Tough,’ European Banking Federation Says - by Jann Bettinga and Aaron Kirchfeld

European Union stress tests of the region’s largest banks are “tough” and will boost market confidence, leading to a rebound in lenders’ shares, the Brussels-based European Banking Federation said.

“Our perception is that they are rather tough,” Guido Ravoet, secretary general of the EBF, said in a telephone interview today. Assumed losses on sovereign bonds, the so- called haircuts, range from 5 percent to 30 percent in the tests, depending on the country, he said, citing information passed on from banks. Ravoet said he didn’t know the haircuts on individual states’ bonds.

EU regulators are carrying out stress tests on 91 lenders aimed at reassuring investors that banks have enough capital to withstand economic and sovereign debt shocks. Assessments carried out in the U.S. last year found 10 lenders needed to raise $74.6 billion of capital.

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