The boy who cried ‘outlier’: false alarms could dog EBA test

Analysis reveals banks deemed outliers by net income test are profitable post-shock, so how useful is the test?

We all know the tale of the boy who cried wolf – he raised so many false alarms that when the real thing happened, it went unheeded. In just over two months’ time, a new stress test designed to gauge the effects of a sudden dislocation in interest rates seems likely to send similarly specious signals to European Union supervisors. With so much noise surrounding the results, will supervisors be able to detect a true threat?

Risk.net has been investigating whether the early warnings of the test