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ECB Says Eurozone Banks Well Equipped To Cope With Rate Shocks

Eurozone banks are well equipped to cope with sudden or sharp changes in the interest rate environment, the European Central Bank said Monday, citing results from a test that used six different hypothetical interest rate shocks.

The study found that higher interest rates would lead to higher net interest income in the next 3 years for a majority of banks, but they would also lower the economic value of equity.

The test, which is part of the annual stress test for banks that is used to measure the overall capital demand, started late February among 111 banks operating in the euro area.

"While the capital demand for individual banks might be adapted to the identified risks, the overall capital demand will not change as a result of the interest rate sensitivity analysis, all else being equal," the ECB said.

The ECB policymakers are mulling over the possibility of winding down its massive monetary stimulus in the near future as they gain confidence from the strong economy and the disappearance of deflationary risks.

Rate-setters are expected to initiate a crucial debate on tapering during their policy session due October 26 and announce a move for January next year. However, economists widely expect an interest rate hike only in 2019.

by RTT Staff Writer

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