Main points of the EU bank stress test results

23rd July 2010, Comments 0 comments

The following are the principal points contained in results released Friday of stress tests on European banks, which were designed to assess their financial health in the event of a future crisis.

Of 91 banks tested by the Committee of European Banking Supervisors (CEBS), accounting for 65 percent of European Union banking activity, seven were found by regulators to be in need of increased capital.



Regional banks Banca Civica, Diada, Espiga, Unnim and Cajasur


Hypo Real Estate, a property and municipal funding specialist owned by the state.


ATEbank, formerly known as Agricultural Bank.


The CEBS estimates that the seven banks at risk under its crash-test criteria need to raise 3.5 billion euros of new capital. The Bank of Spain estimates that, of that total, the five failed Spanish savings banks need to raise 2.043 billion euros (2.64 billion dollars).

The CEBS estimates that under its criteria the total potential damage to the balance sheets of the 91 banks would be 566 billion euros (727 billion dollars) over two years.

In reaction to the global finance crisis, EU governments since October 2008 have injected 236 billion euros to shore up their banking sectors.

By Comparison, the United States tested 19 of its banks in the first half of 2009 and found that 10 of them needed a total of 75 billion dollars in additional funds.


The CEBS used the Tier One ratio to determine a bank's ability to withstand an economic or financial shock.

A bank's Tier One capital is made up of core reserves that cover the risk that depositors might withdraw their money.

The stress tests required banks to maintain a ratio of at least 6.0 percent of Tier One capital to total assets.

The CEBS found that in the event of an economic crisis, seven banks would see their Tier One ratios fall below 6.0 percent.


"For the institutions that failed to meet the threshold for this stress test exercise, the competent national authorities are in close contact with these banks to assess the results of the test and their implications, in particular in terms of need for recapitalisation."

© 2010 AFP

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