The Committee of European Banking Supervisors (C-EBS) have announced the results of stress testing of 91 European banks. These institutions represent about two thirds of all European banking.
The failing banks are one German bank, which is already nationalised after a bailout, one Greek bank, and five Spanish banks.
The overall results were much better than markets had expected, although there is considerable scepticism about the standards used.
The tests focussed "mainly on credit and market risks, including the exposures to European sovereign debt. The focus of the stress test is on capital adequacy; liquidity risks were not directly stress tested" the C-EBS explained when they released their Report.
Regulators tested portfolios of sovereign five-year bonds, assuming a loss of 23% on Greek debt, 12.3% on Spanish bonds, 14% on Portuguese bonds and 4.7% on German state debt, according to the C-EBS.
Theyy also said the tests assessed the impact of a four-step credit rating downgrade on securitised debt products, a 20% fall in European equities in both 2010 and 2011 and 50 other macroeconomic factors, including an economic contraction in the EU.
The basic test was whether the selected banks could maintain a 6% Tier one capital adequacy ratio when stressed. Before stress, the 91 banks averaged 9.2%. Only seven banks failed after the stress senarios were applied, and they will require an extra 3.5 bln euros to meet that minimum standard.
The minimum standard to pass was 6%.
Some results for banks that New Zealanders may be familiar with include:
BNP Paribas - Tier 1 capital before stress test 10.1%; after adverse senario and sovereign shock 9.6%
Credit Agricole - 9.7%; 9.0%
Deutsche Bank - 12.6%; 9.7%
Hypo Real Estate - 9.4%; 4.7% (failed)
Bank of Ireland - 9.2%; 7.1%
Allied Irish Banks - 7.0%; 6.5%
ING Bank - 10.2%; 8.8%
Rabobank - 14.1%; 12.5%
Santander - 10.0%; 10.0%
RBS - 14.4%; 11.2%
HSBC - 10.8%; 10.2%
Barclays - 13.0%; 13.7%
Lloyds - 9.6%; 9.2%
For comparison, according to the latest General Disclosure Statements from New Zealand banks, here are the Tier 1 capital ratios for our banks all as at March 31, 2010:
ANZ National - 9.5%
ASB - 10.4%
BNZ - 9.0%
HSBC - 12.2%
Kiwibank - 7.1%
Rabobank - 12.9%
SBS Bank - 10.3%
TSB Bank - 15.9%
Westpac - 9.5%
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.