By Jason Theodorou

European banks are once again under the microscope as EU stress tests are published today. The stress tests, which apply to all member states across the EU, will publicly reveal results for at least 91 banks. The stress tests are intended to convince investors of the stability of European financial sectors, which have been seen their supply of credit stemmed in recent months.

The tests are used to determine whether banks can survive future economic volatility. If a bank fails, it will need to present a convincing case on how it will restructure to cope with future economic strains. The FSA has said that it expects UK banks to pass all tests.

Included in the tests are Spanish regional lenders, who are seen as more of a concern, having suffered considerable losses after problems in the Spanish property market. The problems did not extend to Santander, who were expected to pass all tests with 'flying colours'.

Credit defaulty swaps, which protect investors against the default of a company's bonds, have been rising to levels equivalent to those seen during the global recession, with investors concerned at the sustainability of European banks including Barclays and BNP Paribas.

Credit Suisse advised clients in a note that a 'no bank failing' scenario was the most likely outcome, and some commentators have argued that the stress tests are not a cure-all for the banking system.

In the UK, banks have already been given severe stress tests by the Financial Services Authority, which led the banks to raise more capital. All UK banks, including Barclays and RBS, are expected to pass the tests.


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