Brussels, 26/07/2010 (Agence Europe) - Six German banks - Deutsche Bank, Hypo Real Estate, the cooperative banks DZ and WGZ, Landesbank Berlin and to a lesser extent Postbank - out of 14 German establishments being subject to the bank stress tests, have not published data on their exposure to sovereign debt. Such a commitment had, nonetheless, been stipulated by the national supervisors meeting at the Committee of European Banking Supervisors (CEBS), which piloted this simulation exercise.
The result of the banking stress tests were published on Friday evening and illustrated that seven European banks - five Spanish saving banks (Banca Cívica, Banca Espiga, Caixa Catalunya, Unimm and Cajasur), a German (Hypo Real Estate) and Greek savings bank (ATEBank), which were, nonetheless, all receiving money from the public coffers (out of a total of 91 European banks) had failed the stress tests (EUROPE 10187). These banks would require €3.5 billion to recapitalise. €1.2 billion would be required for the German HRE bank and €1.03 billion for the Catalan saving bank group, Diada. On Monday the markets gave a positive but non-euphoric response to the publication of these results.
Reactions. The authorities in countries where certain banks failed the stress tests attempted to put on a positive public face. The Spanish ministry of the economy declared in a press statement released on Friday that Spain is the most transparent and strict member state with regard to the publication of stress test results. With a national stress test exercise covering 95% of the national banking system compared to an objective of 50% cover, the Spanish minister declared: “Spain sought to go well beyond the domain of transparency and aims to dissipate any doubts that could exist with regard to the global financial system in Spain”. Madrid also chose to provide a more detailed publication of information on mortgage lending. The Spanish authorities indicate that last Friday they obtained approval from the European Commission to extend the financial system public support mechanism until the end of 2010. During the June European Council, the Spanish Presidency (first half of the year) succeeded in getting the stress tests published throughout the European Union (EUROPE 10162). In a press release from the Greek finance department, George Papaconstantinou welcomed the ability of the Greek banking system to tackle “the extreme conditions” of a stress test”. In his opinion, with the recapitalisation scheme in place and the Financial Stability Fund, the Greek government has created sufficient mechanisms for the support of the financial system and of the economy as a whole. With regard to the parameters defined by the stress test, only the Hypo Real Estate bank is below the required solvability ceiling, acknowledged the German minister for finance. He underlined that the exercise had not taken into account the current restructuring exercise being undertaken at HRE, which is planning on recapitalisation in the second half of this year.
Reactions from the European Parliament came as no surprise. Jean-Paul Gauzès (EPP, France) declared: “The tests were organised with realistic hypotheses that give a good idea of the banks' capacity to resist potential financial difficulties. These good results should not bring us to disregard the implementation of norms, in particular as regards banks' own capital requirements”.
The leader of the liberal group, Guy Verhofstadt, stated that the publication of the stress test results in the banking sector constituted “a vital stage in ensuring the markets of the health and solidity of the European financial sector” and should “create the basis for creating multi-annual plans, which are both solid and sensible and which will pull EU countries out of the economic recession”. Speaking on behalf of the S&D Group, Udo Bullmann from Germany explained that once the tests had been finalised, they should be able to play their full role in helping to provide finance for the economy. He called for the "establishment of a European fund financed by banks, which is also needed to deal with the failure of any relevant bank in the future”.
Sven Giegold (Greens/EFA, Germany), however, reiterated some of the criticism made with regard to the lack of severity in the tests carried out by the CEBS. He considered that the banking stress tests were based on rather complacent hypotheses and subject to lack of confidence. The scenarios examined envisaged an economic recession that was much less for 2008 and which was based on zero growth for 2010 and a recession of 0.4% of European GDP for 2011. Moreover, the impact of the losses linked to bank exposure to sovereign debt only involved assets listed in the trading book, whereas “90%” of this exposure should be included in the banking book. Giegold affirmed that “the tests did not take into account defaulting of eurozone countries, although this was what many markets actors feared” and for whom the depreciation of assets caused by the recent financial crisis and still included in the banks' balance sheets, had still not been taken into account. (M.B./transl.fl)