Eight EU banks fail stress test

15 July 2011 5:14 pm | By Chris Salih

No UK banks have failed the stress tests undertaken by the European Banking Authority.

Eight of the 90 European banks that underwent stress tests have failed the healthchecks. Five from Spain, two from Austria and one from Greece have failed.

The EBA says eight banks fell below the capital threshold of 5 per cent core tier 1 ratio over a two-year time horizon, with an overall core tier 1 shortfall of 2.5bn euros. The EBA also says another sixteen were in the danger zone by holding core tier 1 ratio of between 5 and 6 per cent.

The report says that 20 banks would of failed the test at the end of 2010 with a 26.8bn euro shortfall, however 50bn euros of capital was raised between January and April 2011.

The EBA has also issued a formal recommendation that all banks that fall below the 5 per cent threshold are asked to promptly remedy the problem by their national supervisory authorities. It also wants the national supervisory authorities to ask banks close to the 5 per cent threshold, but have exposure to sovereigns under stress, to take steps to address that position, these would include restrictions on dividends and deleveraging.

The EBA says it will monitor the implementation of these recommendations and publish a report in February and July 2012.

In a statement the FSA says: “We welcome the publication of the EBA stress tests which are an important part of ensuring market confidence and promoting market discipline. The results support our own stress tests and we are pleased that the major UK banks have capital above the minimum required in the test, reflecting the work we and the banks have undertaken to improve resilience since the crisis.”

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