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Working Paper

The vulnerability of Europe’s small and medium-sized banks

Stress tests show significant weaknesses in Europe's small and medium-sized banks. Strengthening the banking system is important to achieve a sustainable recovery because it will revitalise credit to the healthier segments of the economy. But instead of emphasising bank recapitalisation, we believe the task is to shrink the banking sector to a healthier core.

By: and Date: July 15, 2015 Finance & Financial Regulation Tags & Topics

We study the vulnerability of 130 banks directly supervised by the European Central Bank’s Single Supervisory Mechanism. Illustrative stress tests using banks’ balance sheet data reveal that significant stress prevails in the euro area’s smaller and medium-sized banks, many of them located in southern Europe. The banks we identify as stressed also have performed substantially worse on the stock market. The vulnerable banks are typically hobbled by non-performing loans to European businesses.

Strengthening the banking system, therefore, is important to achieve sustainable recovery because it will revitalise credit to the healthier segments of the economy. But instead of emphasising bank recapitalisation, as in past years, we believe the task is to shrink the banking sector to a healthier core.

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Parliamentary Testimony

The European Deposit Insurance SchemeEuropean Parliament

The European Deposit Insurance Scheme

Statement prepared for the European Parliament’s ECON Committee Public Hearing of 23 May.

By: Guntram B. Wolff Topic: European Macroeconomics & Governance, European Parliament, Parliamentary Testimonies Date: May 23, 2016
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