European banks will be expected to prove they can survive a 7% drop in GDP under new tougher stress tests unveiled yesterday by the regulator, the European Banking Authority. It says banks should be able to withstand a 14% fall in house prices and up to a 19% drop in share prices under a worst-case scenario. The tests are designed to try and prevent further taxpayer bailouts and will "address remaining vulnerabilities in the EU banking sector".
The Wall St Journal's Gabriele Steinhauser says that while the scenario is pretty tough and such a drop in GDP would hurt the euro zone economy, it is not as big a drop as seen over the past few years during the debt crisis. Under the stress tests scenario, unemployment in the euro area could go to 13% - the highest level since they started taking data for the entire EU - something which would be very painful for the economy. But she said that considering we are starting from a very high level already, the overall increase in joblessness is not as high as the increase witnessed during the financial crisis.
Ms Steinhauser says the European Central Bank will oversee the stress tests for the main banks in the euro zone, while the EBA is the pan-EU regulator. She says that in previous tests, a lot of criticism was heard about the lack of transparency and after passing the tests, some banks needed more capital in the months shortly afterwards. But this time they are saying that the prescriptions for national supervisors on how they implement the scenarios are also much stricter than in the past. She says that about 7,000 data points for every bank will be released so a lot of information will be available for analysts to run their own scenarios.
MORNING BRIEFS - Fifteen European banks, including Bank of Ireland, have had the outlook on their credit ratings cut to "negative" from "stable" by Standard & Poor's. The rating agency said the move reflects efforts by European governments to require creditors rather than taxpayers to bear the burden of the costs. Others to be downgraded included Barclays in the UK and Deutsche Bank in Germany.
*** America is about to lose its number one slot in the world's top economy rankings, and could fall behind China this year, according to new research by the World Bank. The US has been the world's global leader since overtaking the UK in 1872, and most economists had thought China would pull ahead in 2019. The World Bank figures are seen as the most authoritative estimates of what money can buy in different countries and are used by lots of organisations, like the International Monetary Fund, and it's the first time they have been updated since 2005. With the IMF expecting China's economy to have grown 24% between 2011 and 2014 while the US is expected to expand only 7.6%, China is likely to overtake the US this year.
*** Tullow Oil is to sell just over half of its Schooner and 60% of its Ketch assets in the UK Southern North Sea to Faroe Petroleum for $75.6m. Tullow also said, in a management statement today, that the firm has made good progress across the business since the beginning of the year. Exploration success in Kenya has continued, it says, with development planning for oil production in Kenya and in Uganda well under way. Good results are also expected from wells in Kenya, Ethiopia, Gabon and Norway this year.
*** Shares in Twitter dropped to their lowest levels since the company's stock market flotation last night, as it reported slower than expected user growth. Its shares fell by more than 11% in after-hours trading, sending the price below its IPO price of $38.80 per share. The number of active users on the social network reached 255 million in the first three months of 2014, up 5.8% on the previous three months, but still well below that of its most high-profile competitor, Facebook, which boasts 1.28 billion active users.