Broker snap: ECB stress tests to restore confidence in banks, says Credit Suisse

Creidit Suisse believes that the new round of stress tests by the European Central Bank (ECB) should improve confidence in European banks as it reiterated its 'overweight' position on the sector.The ECB on Wednesday outlined proposals for a year-long series of health checks on European banks, which consists of three main elements; a supervisory risk assessment on liquidity, leverage and funding, an asset quality review (AQR), and a stress test to be conducted in collaboration with the European Banking Authority.The Swiss broker said that the AQR is "broader than we had anticipated" with a very thorough review of various assets being targets. However, the ECB will use the 8% minimum common equity tier-1 ratio as a benchmark "which is more lenient than expectations", it added."At this early stage we reiterate our view that if the ECB review provides transparent enough disclosures on banks' balance sheet this exercise could restore further confidence in the sector."The banking sector in London was trading up 0.76% on Thursday morning, rebounding after a 1.3% fall the day before.BC