European Stress Tests May Have Understated Bank Risk

Europe's stress tests of major banks may have understated some banks' holdings of potentially risky government debt, The Wall Street Journal said.

Some banks excluded certain bonds, and some reduced the sums disclosed to account for short positions. As a result, banks including Barclays PLC (BSC) and Crédit Agricole SA may have understated their exposure to government debt, The Wall Street Journal said.

The Wall Street Journal analysis could undermine the main purpose of the stress tests, which was to reassure investors about the solidity of Europe's banks.

The analysis "would certainly be unhelpful to people's perceptions" of the tests' credibility, UBS banking analyst Alastair Ryan told The Wall Street Journal. Reducing banks' reported holdings of government debt "was clearly helpful for the thing [regulators] were trying to achieve: convincing you that there's not a problem."

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