The European Union's banking watchdog has launched its toughest stress test of lenders to check on their resilience to very low interest rates, trade tensions and Britain failing to get an EU trade deal after Brexit.
The European Banking Authority (EBA) said its fifth test since the aftermath of the financial crisis a decade ago, when governments bailed out lenders, covers 51 banks, including four from Britain even though the country leaves the bloc on Friday.
The "scenarios" of theoretical shocks being tested include for the first time interest rates remaining at ultra-low levels, with accompanying poor economic growth, weak inflation and crashes in markets for assets like real estate.
Banks have long complained about ultra low central bank rates introduced after the financial crisis hitting profitability.
Trade tensions between the United States and China have rattled markets in recent months.
Bank by bank results for the test, which the EBA says is the toughest yet, will be published by July 31, though with no pass or fail mark.
Earlier tests sought to bolster capital levels across the sector and with this task largely accomplished, the exercise is used by regulators to decide if capital "add ons" are needed to cover vulnerabilities and risks specific to each bank.
The EBA was under pressure to toughen up the 2020 test after the European Court of Auditors, responsible for evaluating EU policy, said last year that the previous exercise in 2018 was too mild, spared economically weaker countries, and saw no lender failing.
The 4.3% theoretical fall in EU economic growth over two years is still less than the drop in U.S. growth seen in the harshest scenario used by the Federal Reserve in its test of American banks.
UK lenders Barclays, HSBC, Lloyds and Royal Bank of Scotland are included because Britain has an 11-month business-as-usual transition period after Brexit Day on Friday until December, during which all EU rules continue to apply.
The Bank of England will conduct its own test of UK lenders this year and has said the banking sector already holds enough capital.
Britain and the EU will use the transition period to try and negotiate a trade deal by January 2021, with the bloc saying on Friday the talks would be tough.
"The adverse scenario encompasses a wide range of macroeconomic risks potentially stemming from Brexit," the EBA said.
The test does not cover the impact of climate change on banks, but the EBA will separately collect data on climate-related exposures from a group of lenders and disclose aggregated findings in its regular reports on risks in the sector.