All major European banks pass stress test

23 July 2010 0:00 am | Updated: 23 July 2010 5:30 pm | By Lee Jones

All the biggest European and UK banks passed the Committee of European Banking Supervisor’s stress test while seven small government-controlled banks failed.

The Euro body has revealed that seven banks’ tier one capital ratios would fall below 6 per cent should they be exposed to severe adverse conditions through 2010 and 2011. The current minimum regulatory threshold is 4 per cent but the CEBS used 6 per cent as a stress threshold.

The banks that failed are: Spain’s Cajasur, Espiga, Unnim, Diada and Banca Civica, Greece’s ATEBank and Germany’s Hypo Real Estate.

RBS, HSBC, Lloyds Banking Group and Barclays took part in the test and passed. Under the conditions of a drop in European GDP of 3 per cent, as well as significant sovereign debt shocks all four banks would keep a core tier 1 ratio of at least 9.6 per cent.

CEBS says the aggregate tier 1 ratio under the adverse scenario would decrease from 10.3 per cent in 2009 to 9.2 per cent by the end of 2011. This result is reliant on 38 of the 91 banks continuing to receive governmental support.

In total, under the adverse scenario European banks would lose a total of €566bn (£470bn).

The stress test focuses mainly on credit and market risks, including the exposures to European sovereign debt.

The FSA says: “As expected the outcomes of the stresses demonstrate the preparedness and resilience of the UK banks under unlikely adverse economic scenarios. The FSA has published the high level results for the UK banks. This resilience is a result of the considerable work that has been undertaken to strengthen UK banks in recent years.”

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