The ECB’s geopolitical stress test needs a price
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Only a market can say how much it should cost to insure against losses from a geopolitical risk event, and none exists, argues academic
In July, the European Central Bank announced the results of a thematic reverse stress test on geopolitical risk covering its 110 directly supervised banks. The design was elegant: rather than handing banks a scenario, the supervisor prescribed the outcome – namely, a depletion of Common Equity Tier 1 capital of 300 basis points – and asked each institution to work backwards to the geopolitical
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