8 European banks fail stress test

Updated: 2011-07-16 08:55


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LONDON - Eight out of 90 European banks have failed a crucial stress test and another 16 banks dropped in the danger zone, the European Banking Authority (EBA) said on Friday.

Five banks from Spain, two from Greece and one from Austria fell below the capital threshold of five percent core tier 1 over two years' horizon, with an overall core tier 1 shortfall of 2.5 billion euros (about $3.53 billion), according to a report released by the EBA.

In Spain, Catalunya Caixa, Pastor, Unnim, Caja3 and CAM failed to meet the capital requirements. Two state-controlled Greek banks, ATEbank and EFG Eurobank, and the Oestereichische Volksbank from Austria also failed.

The assessment was made based on each bank's statistics by the end of April this year.

On Wednesday, the German bank Helaba announced to withdraw from the stress test after the EBA had rejected its request to include its debt-equity hybrid, or "silent participation", into its capital reserve. Otherwise, it would be the ninth to fail the test.

Among the 90 banks from 21 European Union (EU) countries tested, 16 had a narrow escape with a core tier 1 rate of between five and six percent, the EBA added. The London-based financial regulator urged these banks to take immediate measures to strengthen their capital status.

The EBA also said 20 banks would have failed the test if assessed on statistics by the end of 2010. Yet it allowed the banks to increase capitals in the first four months of 2011 and finally come up with much better results.

The result of the test, designed to assess the resilience of the European banks to withstand another financial crisis, has exceeded earlier expectation, as insider reports predicted that 10 to 15 banks were to fail.

The EU had been trying to convince the market the credibility of the banking sector review.

Just seven out of the 91 banks tested failed last year's stress test. But the Allied Irish Bank (AIB), one of the survivors, turned to government bailout only months thereafter, triggering broad doubts over the credibility of the test.

The EBA then came into being at the start of 2011 to re-conduct stress tests on the banks, aiming to restore market confidence in the banking sector that has been battered by the euro zone debt crisis.

However, there are still doubts on whether the test terms of this round are severe enough. Ratings agency Standard & Poor's said before the result came out that the EBA didn't pitch its stress scenarios at a level as stringent as to suggest material capital shortfalls.

Jim O'Neill, chairman of Goldman Sachs Asset Management, told Xinhua he regarded the result as a bit of a "red herring".

"It is surprising that such a small amount of capital will need to be raised, and so few were failed," he said.


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