Bank stress tests ahead of possible Croatian eurozone membership

7 Aug 19

Croatia has taken a step closer to joining the eurozone, after the European Central Bank confirmed it was going to carry out tests on five Croatian banks.

According to Reuters, the ECB announced the step today – a month after Croatia made a formal bid to join the European Exchange Rate Mechanism (a precursor to euro membership).

Five banks will be stress tested; the ECB will run experiments to see how well they would react to events such as recessions or financial market crashes.

Croatia argued in a letter sent on 4 July to several euro institutions and eurozone finance ministers that it was a good candidate for the Exchange Rate Mechanism, which would introduce a fixed margin of exchange rate between the euro and the kuna.

Its public finances have been brought “onto a more sustainable path” since 2015, its financial sector has been stable for 25 years and the republic has reported sizeable account surpluses in recent years, the letter stated.

Days later, eurozone and Denmark finance ministers, the ECB president and the Central Bank Governor of Denmark released a statement supporting the move.

The bank stress test results are expected to be published in May 2020.

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