Highlights

• European systemically important banks (or EU GSIBs 1) have continued to improve their solvency positions notwithstanding the challenging market environment of the first half of the year.
• In 1Q16, the unfounded concerns on the capacity of some banks to service AT1 coupon payments hit bank valuations and contingent-convertible (CoCo) prices. The market volatility episode was short-lived, with CoCo prices and option-adjusted spreads swiftly recovering during the second part of 1Q16.
• In 2Q16, European equity prices fell in the aftermath of the UK referendum result, with European bank share prices falling by c21% in the two days after the referendum result was confirmed.
• European banks endured two real-life stress tests in less than six months, in the context of ultra-low interest rates and increased net-interest margin pressure. Yet, banks continued to improve their solvency positions via a combination of balance sheet restructuring and a build-up of capital buffers.