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The Editors

How Safe Are Europe’s Banks? Right Now, It’s Hard to Tell

The EU’s stress-testing rules aren’t strong enough.

Under pressure?

Under pressure?

Photographer: Tomohiro Ohsumi/Bloomberg

The departing head of the European Banking Authority has issued a warning over the state of the EU’s so-called stress tests, which are meant to show whether banks have sufficient capital to weather bad news. Andrea Enria, who’ll shortly become head of the supervisory arm of the European Central Bank, is right that the system needs reforming, but his suggestions aren’t enough to fix the problem.

Since 2011, the EU authorities have run four stress tests, including one this year. The exercises led banks to strengthen their capital buffers, but investors remain skeptical. The authorities have sometimes given banks a clean bill of health or required no more than mild remedial action only to see them get into trouble soon after. The implication is that the tests aren’t stringent enough.