The next round of stress testing for European banks will be more rigorous than the tests conducted in 2010, and the industry is being called on to show moderation in awarding bonuses, according to Bloomberg. On Tuesday, European Union Financial Services Commissioner Michael Barnier pledged to tighten the coming round of stress testing, and asserted, We need a credible response after the tests, after a weakness has been discovered. The tougher testing criteria is seen as a necessary change to renew confidence in the regions financial industry after last years tests were seen as being too soft.
In particular, Barnier highlighted the widespread agreement among finance ministers and the European Commission that the next tests should be marked by total transparency taking into account sovereign risk. Although there will be some changes, the official said the methodology and approach of the next round of testing will be based on last year. Barnier also urged banks to show restraint in remuneration as the rest of the region is suffering under the weight of the lingering recession compounded by the sovereign debt concerns.