Stress tests show EU bank weaknesses

Seven of the 91 European banks that
underwent stress tests have failed the health checks, the Committee of European
Banking Supervisors (CEBS) has said.

They include five Spanish banks –
Diada, Espiga, Bianca Civica, Unnim and Cajasur. The other two were Germany’s
Hypo Real Estate and Greece’s ATEBank.

The tests assessed banks’ ability
to survive future economic shocks.

The seven banks would need a total
of $4.5 billion  of new capital to meet
the standards required, CEBS said.

The weekend is expected to be an anxious
time for banks, as they wait to learn whether it will become easier or harder
for them to borrow, when markets open on Monday.

The stress tests were conducted on
a bank-by-bank basis, in a move designed to reassure investors over the health
of Europe’s financial sectors.

The seven banks failed because in
an adverse scenario, assuming a “double-dip” recession, it was deemed
that their “tier one” capital ratios – the strictest measure of
capital – would fall below 6 per cent, the threshold set for the test.

In its report
revealing the aggregate outcome of the tests, CEBS said that the 6
per cent threshold was used as a “benchmark solely for the purpose of this
stress test exercise”.

“This threshold should by no
means be interpreted as a regulatory minimum… nor as a capital target reflecting
the risk profile of the institutions.”

The UK’s four major banks – RBS,
Lloyds, HSBC and Barclays – were among the banks tested.

The Financial Services Authority
had already said it expected the UK banks to pass the tests.

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