European watchdogs need to stop moving goalposts for lenders
European Banking Authority and European Central Bank must provide more clarity to give people the confidence to invest more in bank equities
Europe’s banks have come a long way since the eurozone crisis. Lenders have halved their piles of non-performing loans from €1-trillion in 2014 to €543bn in the third quarter of 2019. However, markets still doubt lenders’ real strength, as you can see from their depressed price-to-book ratios. The blame falls, in part, on regulators and supervisors.
For years the European Banking Authority (EBA) and the European Central Bank (ECB) have struggled to put together a system of supervisory scorecards that investors deem credible and easy to read. The EBA stress tests, which rely heavily on lenders’ internal models, have been seen as too soft. Meanwhile, shareholders have found it difficult to understand what exactly the ECB expects from their banks...
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