Open

Coming up

Don't miss

Replay


LATEST SHOWS

MEDIAWATCH

Netanyahu deletes tweet featuring photo of James Foley

Read more

THE WORLD THIS WEEK

The World This Week - 22 August 2014 (part 2)

Read more

THE WORLD THIS WEEK

The World This Week - 22 August 2014

Read more

FRANCE IN FOCUS

FRANCE IN FOCUS

Read more

FOCUS

Lifting the veil over China's air pollution

Read more

ENCORE!

Tango Takeover in Paris

Read more

WEB NEWS

Calls for ISIS media blackout after execution of James Foley

Read more

IN THE PAPERS

'Steely resolve of reporters exploited by pared-down employers'

Read more

BUSINESS DAILY

US judge calls Argentina bond swap offer illegal

Read more

  • French teenage girls held over Syria jihad plans

    Read more

  • Good borders make good neighbours, Merkel tells Ukraine

    Read more

  • Bombs across Iraq kill dozens as violence escalates

    Read more

  • Iceland issues aviation alert on volcano activity

    Read more

  • France will not be 'be pushed around' by Germany

    Read more

  • Libya withdraws as Africa Cup of Nations host

    Read more

  • ‘European GPS’ satellites launched into wrong orbit

    Read more

  • Video: Israel bombs kidnapping suspect’s home

    Read more

  • US brands journalist’s beheading a ‘terrorist attack’

    Read more

  • Ebola prompts Philippines to recall UN troops in Liberia

    Read more

  • Besieged by problems, Hollande faces unhappy return from summer holidays

    Read more

  • US sued over ‘deportation mill’ in New Mexico

    Read more

  • Colombian army and FARC rebels in face-to-face talks

    Read more

  • US National Guard starts to pull out of embattled Ferguson

    Read more

  • US job market yet to recover from recession, says Fed Chair

    Read more

  • August 22, 1914: The bloodiest day in French military history

    Read more

  • Fear of Ebola sky-high among Air France workers

    Read more

Business

Seven out of 91 European banks fail stress tests

Video by Luke SHRAGO

Text by News Wires

Latest update : 2010-07-23

Seven out of 91 European banks failed to pass tests measuring their ability to withstand an economic downturn, the Committee of European Bank Supervisors said on Friday, with banks in Germany and Spain being noted as weak spots.

REUTERS - Seven European banks would not be strong enough to withstand another recession and would face a capital shortfall of 3.5 billion euros ($4.5 billion), tests run in an attempt to revive investor confidence showed on Friday.

Five of Spain’s smaller regional lenders, known as cajas, failed the test and their recapitalisation is likely to speed a restructuring of the troubled sector.

Banks in Germany and Greece were also seen as weak spots and in need of restructuring, but state-owned Hypo Real Estate was the only German lender to flunk and state-controlled ATEbank was the only Greek bank to fail.

Analysts had expected five to 10 banks to fail the test. As expected, no big banks failed the health check.

German government bond futures hit one-month lows and the euro briefly pared its losses against the dollar after the results were released.

Europe tested how 91 banks would cope with another recession and losses on government debt after the Greek crisis hit markets and raised fears the euro zone could unravel.

It aimed to repeat a health check on U.S. banks last year that helped restore investor confidence and underpinned a recovery by bank shares.

The Committee of European Bank Supervisors said its test was more severe than the U.S. health check of its banks. The adverse scenario in Europe was a one in 20 years possibility, compared to a one in 7 years probability in the U.S. test, it said.

But markets have had their doubts.

“I see nothing stressful about this test. It’s like sending the banks away for a weekend of R&R,” said Stephen Pope, chief global equity strategist at Cantor.

Under the most severe scenario banks were tested on how they would cope with a moderate recession this year and next, with additional losses on government bonds.

Any bank whose Tier 1 capital ratio falls below 6 percent by the end of 2011 failed the test, and would be expected to raise funds to make up the capital shortfall.

Of most concern to investors was that government bond losses were only applied to trading books, and not hold to maturity bonds, as the test did not consider there was a risk of any sovereign default.

Banks’ holdings of government bonds were subjected to a 23.1 percent loss on their Greek debt, a 12.3 percent loss on Spanish bonds and a 4.7 percent loss on German debt, all based on 5-year bonds and their value at the end of 2009.

Spain, Germany in Spotlight

The hunt for weak spots in European banking has focused on Spain’s regional savings banks, as well as regional German lenders, known as landesbanks.

Spain and Germany have set up funds to help weak banks recapitalise and Spain wants more cajas to merge.

With the latest data showing signs of a strengthening recovery in Europe, banks could find themselves in a healthier position than expected.

A stress test on U.S. banks early last year helped draw a line under worries about the sector there. European regulators were aiming to achieve the same.

But there have been clear splits in the 27-nation EU about how to model the test and how much to divulge, stoking worries that it will be less credible.
 

Date created : 2010-07-23

  • ECONOMY

    What is the purpose of European bank stress tests?

    Read more

  • BANKING

    Stress tests to measure resilience of European banks

    Read more

  • USA

    Europe grants US access to bank data to fight against terrorism

    Read more

COMMENT(S)