Brussels, 15/07/2011 (Agence Europe) - On Friday 15 July, the European Banking Authority (EBA) published the results of the 2011 stress tests on 90 European banks accounting for more than 65% of European assets. The results come at the end of a week of high tension of the financial markets due to the lingering sovereign debt crisis (see EUROPE 10340). Taking account of capital raising that has enabled European banks to find an extra €50bn as at the end of April this year, the EBA comments that eight banks (five in Spain, two in Greece and one in Austria) have failed the stress tests, meaning that in the event of a crash in the economy, they would find themselves under-capitalised with Tier 1 core capital of less than 5%, with a €2.5bn gap in funding. Sixteen banks (seven in Spain, two in Germany, two in Greece, two in Portugal, one in Italy, one in Slovenia and one in Cyprus) have capital levels that are only just above the minimum levels (with Tier 1 capital of between 5% and 6%).
The EBA recommends that banks that scrape through the tests and the banks that failed should raise extra capital. In the first place, they should appeal for private funding but should that not be forthcoming, they would be allowed to call for public aid. The 16 banks that scraped through the tests should cut dividend payments to investors and reduce debt by converting some other forms of capital into higher quality capital. The EBA will examine their progress in February and July 2012. All eyes are now fixed on the money markets to see how they will react to the exposure of European banks to eurozone sovereign debt. The European Banking Federation fears that the publication of the sovereign debt exposure will make it harder for struggling banks to raise cash on the money markets (M.B./transl.fl)