ECB to test banks’ resilience to sharp interest rate changes

European Central Bank (ECB) headquarters in Frankfurt

FRANKFURT (Reuters) – The European Central Bank will test the euro zone’s top lenders on their resilience to sharp changes in interest rates after years of ultra-easy monetary policy, it said on Tuesday.

Ultra-low or negative ECB rates since the start of the financial crisis have eaten into banks’ margins and led them to take on more risk for smaller returns, raising concerns about how the sector might cope once monetary policy is tightened.

The stress test exercise, which will simulate various scenarios between now and July, “is designed to …understand the interest rate sensitivity of a bank’s assets and liabilities in the banking book and of net interest income to hypothetical interest rate changes,” the ECB said.

“The banks’ overall capital demand – requirements and guidance – is not expected to change, all else being equal.”

(Reporting By Francesco Canepa; editing by John Stonestreet)