EU publish results of bank stress tests, only 7 banks fail

09:47, July 24, 2010      

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The European Union (EU) banking supervisors published results of the much-anticipated banks stress tests on Friday, showing only 7 out of a total of 91 European banks failed the tests.

A woman walks in front of a branch of ATEbank in Athens July 23, 2010. Greek state-controlled lender ATEbank failed the bank stress tests on Friday. (Xinhua/Reuters)

The Committee of European Banking Supervisors (CEBS), the London-based EU body in charge of carrying out the tests with EU national regulators, said in a press release that seven banks failed the tests and need extra money to reassure investors in their resilience to another crisis.

"As a result of the exercise, under the adverse scenario 7 banks would see their Tier 1 capital ratios fall below 6 percent, with an overall shortfall of 3.5 billion euros (4.5 billion U.S. dollars) of Tier 1 own funds," the CEBS said in a statement.

The EU supervisors had said that any bank whose ratio of Tier 1 capital fell below 6 percent would be regarded as failing the tests.

The seven banks included one from Germany, one from Greece and five from Spain, according to the CEBS. A total of 91 banks from 20 EU countries, representing 65 percent of Europe's banking sector, were examined during the tests.

The CEBS said that the objective of the tests is to provide policy information for assessing the resilience of the EU banking system to possible adverse economic developments and to asses the ability of banks to absorb possible shocks on credit and market risks, including sovereign risks.

The CEBS said that aggregate impairment and trading losses under the adverse scenario and additional sovereign shock would amount to 566 billion euros over the years 2010-2011.

"Where the results of the exercise indicate that individual banks require additional capital, these banks should take the necessary steps to reinforce their capital positions through private-sector means and by resorting, if necessary, to facilities set up by Member State governments, in full compliance with EU state-aid rules," the CEBS said.

At a press conference held afterwards, CEBS chair Giovanni Carosio said that the stress tests were severe and the relatively small capital shortfall was due to the huge amounts of capitals injected into the banks by the EU governments.

"Not only is the stress that we applied to the banks a severe one, it also does imply a very significant amount of losses," Carosil said.

"What really explains the result is essentially the fact that the banks start from very high levels of capital ratios," he added.

In a joint statement, the CEBS, the European Central Bank and the European Commission welcomed the transparency of the tests.

"The results of the test confirm the overall resilience of the EU banking system to negative macroeconomic and financial shocks, and are an important step forward in restoring market confidence," the statement said.

To shore up market confidence in Europe's banking sector, EU finance ministers asked the CEBS to carry out the tests from March this year.

The decision to announce publicly results of the stress tests was made at a summit meeting of EU leaders on June 17 this year.

Source: Xinhua


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