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Sunday, April 27, 2014

Deflation, emerging market fears set scene for tough EU bank tests

By Laura Noonan LONDON (Reuters) - Fears of euro zone deflation, emerging markets turmoil and a determination not to repeat past mistakes mean European regulators are likely to come up with the toughest set of tests for the region's banks that they have ever faced. The European Banking Authority (EBA) will on Tuesday reveal the crisis scenarios that banks will have to prove they can withstand without resorting to the kind of taxpayer bailouts that all but bankrupted some countries in the 2008-2012 crisis. The European economy has rallied since the last round of bank stress tests three years ago and sharply lower borrowing rates for countries such as Greece - which can now borrow five year money at an interest rate below 5 percent against the 20 percent it was paying when the 2011 tests were done - support the idea that the worst of the euro zone crisis has passed. But with widespread criticism heaped on 2010 and 2011 stress tests for being too soft, and new risks on the horizon, regulators are likely to set tougher conditions all the same.


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