European Central Bank to test banks on ability to cope with mass withdrawals

THE European Central Bank (ECB) has said it will test around 100 eurozone banks this month to see if they can handle mass withdrawals.

The liquidity stress tests are set to see the banks subjected to various shocks to see how long they can cope with money being withdrawn from deposits.

They come after Spanish bank Popular was brought down by mass withdrawals in 2017, leading to Santander buying it out.

The ECB tests are made up of three different scenarios. There is the baseline scenario of stable output flows, the adverse shock scenario where liquidity is limited and the extreme shock scenario where wholesale activity is frozen.

The tests will not assess systemic economic shocks but ones that affect banks individually.