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ECB pushes for more stress tests

The European Central Bank (ECB) has today joined the European Union in pushing for more stress tests for European financial institutions. This is a move which was announced earlier this week and appears to have the backing of all major financial regulators within Europe but could this move do more harm than good?

There is a growing concern that the publication of various stress tests could differentiate between strong banks and weaker banks and investors could change their investment decisions because of these reports. It is also likely that lenders to European banks would also want to increase their rates for a potential client that had been shown as one of the weaker institutions in Europe. While the idea to show the underlying strength of the European financial sector as a whole is a sensible one, maybe the European Union should really consider maintaining the confidentiality of these reports and possibly issuing less specific information.

It will be interesting to see how the European Union and ECB ensure fair and smooth markets after the publication of these reports and it is also worth remembering that the UK government and the Bank of England decided against publication of similar stress tests in the UK.

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