Should a State’s risk of default be taken into account, something which wasn’t done in the last round of tests? These stress tests are currently being very carefully prepared by the relevant institutions. I have every faith that they will be rigorous in their preparation.
As you know, a State’s risk of default as measured by the market is taken into account in the “trading book”. In the “banking book”, where instruments are held until maturity, default is not an envisaged possibility. Is the ECB better equipped to prevent/anticipate a country’s risk of default now that it is at the helm of the new European Systemic Risk Board (ESRB)?