Information Value in EU-Wide Bank Stress Test

Abstract

The paper starts with an evaluation of the banks’ solvency information disclosed in the 2018 and 2016 EU-wide stress tests, asking do they add value to the information available in the bank capital ratios observed at the start of the stress exercise? It argues that information from price-to-book, degree of imperfect information on the value of assets and relative holding of domestic government bonds all require a bank-specific approach in the supervisory review and evaluation process (SREP) exercise. In short, one size does not fit all.