Just 7 of 91 European banks failed
a widely-publicised stress test, far fewer than expected, and will
be forced to meet higher capital requirements.
Of the 91 banks that represent 65%
of the European market in terms of total assets, no major retail
banks failed.
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The failed banks include five
Spanish cajas, the country’s small regional lenders,
Germany’s Hypo Real Estate and Agricultural Bank of Greece, the
latter two of which are government-owned.
The Committee of European Bank
Supervisors (CEBS), which co-ordinated the tests in co-operation
with the European Central Bank (ECB) and the European Commission,
said the seven banks will have to boost capital by €3.5bn
($4.5bn).
The tests revealed that under the
“adverse scenario”, aggregate impairment and trading losses taking
into account additional sovereign shock, would amount to €566bn
between 2010 and 2011.
The seven banks in question would
also see their top Tier 1 capital, used as a common measure of a
bank’s resilience to shocks, fall below 6%, a benchmark used solely
for the purpose of the stress-test and stricter than the 4%
regulatory minimum for banks supervised in the European Union
(EU).
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By GlobalDataCollectively, the Tier 1 ratio
under the adverse scenario would decrease from 10.3% in 2009 to
9.2% by the end of 2011.
But the CEBS noted that aggregate
results depend partly on the continued reliance on government
support for 38 institutions in the exercise.
Despite drawing criticism from
analysts for being too soft on banks, the CEBS said the tests were
conducted “under severe assumptions” and were three times as tough
as the US stress tests conducted last year.
In addition, the focus has been
extended to a larger share of the banking market, compared to 2009,
where the test tested just 26 major European banks.
Among the major banks that scraped
a pass was Greece’s Piraeus Bank with a top Tier 1 ratio of 6%,
Deutsche Postbank (6.6%) and Allied Irish Bank at 6.3%.
Other near-fails include a string
of Spanish cajas that received a top Tier 1 ratio creeping
just above the 6%-benchmark.
But unsurprisingly, the largely
positive results were welcomed by banks which passed with stronger
top Tier 1 ratios.
HSBC, which had a Tier 1 ratio of
10.2% after testing, said the result was above its target
range.
Sweden’s Nordea also praised the CEBS outcome after the bank’s
Tier 1 ratio did not fall below 10% in any of the scenarios.
