Great success of European banks to test resistance
July 23, 2010 – 6:05 pmOnly seven of the 91 European banks subject to stress tests have failed and may need 3.5 billion euros of additional capital, according to test results released Friday by the Committee of European Banking Supervisors (CEBS).
Five Spanish banks, Civica Cajasur, Unnim, and Espiga Diada, a Greek bank, Atebank and a German bank, Hypo Real Estate, have not been able to maintain a ratio of Tier 1 financial stability of at least 6 % in the worst case scenario used by CEBS in its tests and could be forced to undertake a strengthening of their capital.
Publication of "stress tests" is supposed to prove to investors that the 91 banks from 20 countries of the European Union under scrutiny can support a new economic and financial crisis and the authorities are able to solve the problems of schools failed to tests.
The European authorities have welcomed these results confirm that the "resilience" of overall banking system of the European Union, have welcomed the CEBS, the European Central Bank (ECB) and the Brussels Commission in a joint statement.
Economists have welcomed news of more mixed.
"The initial reaction so far suggests that the tests were not as severe as they might be and the market remains fairly cautious," said Ian Stannard, currency specialist at BNP Paribas. "We see the true reaction next week when the results have been fully digested and the landscape will be clearer."
CAPITAL INCREASES TO
Several banks have passed the tests of accuracy. The Spanish Banco Pastor has shown a ratio of only 6.0%, just like his compatriot Caja Sol or the Greek bank Piraeus Bank Group.
Other major institutions are on the razor's edge.The Tier 1 ratio of German bank Deutsche Postbank spring to 6.6%, while Allied Irish Bank, Irish 6.5% and the Italian bank Monte dei Paschi di Siena at 6.2%.
For the four French banks BNP Paribas, Societe Generale, Credit Agricole, BPCE, like the Franco-Belgian bank Dexia, success is much clearer.
They would display an average solvency ratio of 9.3% at end 2011 in the event of a deteriorating economy stronger than expected and a new sovereign debt crisis, which eliminates any need for recapitalization.
Among banks that have failed, ATEbank already has plans to increase its capital by at least 250 million euros, according to a source inside the facility.The Greek government said it was ready to participate in the operation.
The European authorities have stressed on Friday that banks in need of additional capital should involve the private sector and, if necessary, also to public financing instruments.
Having risen to $ 1.29, the European currency dropped to 1.2845 dollars (-0.43%) to 1630 GMT.
The cost of insurance against the risk of default of most European banks continued to fall after the release tests, according to Markit Intraday.
For example, the CDS on the debt, BNP Paribas fell by four basis points to 104 bps, while the debt of the Commerzbank fell three points to 104 as well.
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