Brussels, 18/07/2011 (Agence Europe) - On Monday 18 July, EU Internal Market Commissioner Michel Barnier said that the European Banking Authority (EBA) had done good work with the bank stress tests, and the introduction of greater transparency, stricter tests and better checking of the results had made the 2011 tests earnest and credible. He said that criticisms went in both directions with on the one hand, the EBA being criticised for making the tests too tough, and on the other hand, for underestimating the dangers of exposure to sovereign debt. In a joint press release, Commissioners Rehn and Barnier commented: “For those banks that have not met the threshold, and for those that have but still demonstrate substantial weaknesses, we expect them to take all the necessary steps to reinforce their capital positions.” Firstly, by raising private capital before calling for public bailouts, if necessary. The banks have been given until the end of next year to raise sufficient capital.
The markets were up on Monday (the first trading day after publication of the stress test results on Friday, see EUROPE 10420), ahead of the eurozone summit on Thursday (21 July, see separate article). The published details of banks' exposure to sovereign debt were examined with a fine tooth-comb over the weekend to determine how the industry would survive any default of a country in the euro, a hypothesis not tested by the EBA. Ninety European banks were tested to see how they would survive a severe two-year downturn (see EUROPE 10340). To pass the test, banks had to keep their top quality Tier 1 capital levels at above 5% of total assets. Eight banks failed the tests, revealing a combined capital shortcoming of €2.5bn. Five of the failed banks are Spanish (CatalunyaCaixa, Unnim, Caja Mediterraneo, Caja3, Banco Pastor), two Greek (ATEBank, Eurobank EFG) and one Austrian (Volksbanken). Failed German bank Helaba Seize decided to withdraw from the 2011 stress tests due to disagreements about how they were carried out.
Sixteen banks scraped through the tests with core Tier 1 capital of between 5% and 6% of total assets, namely seven Spanish banks (Banco Popular, Caixa Galicia, Bankinter, BFA-Bankia, Banca Civica, Caixa Ontinyent, Banco de Sabadell), two German banks (HSH Nordbank, Norddeutsche Landesbank), two Greek banks (Piraeus Bank Group, TT Hellenic Postbank), two Portuguese banks (Espirito Santo, Banco comercial Portuguese), one Italian bank (Banco Popolare), one Slovenian bank (Nova Ljubljankska Banka) and one Cypriot bank (Marfin Pop. Bank). Praising Spain's openness in allowing 25 of its banks to be tested, Barnier said the big Spanish banks were “solid”, but for the five banks that failed the stress tests, the Spanish government would decide whether or not it needed to bail them out. The Bank of Spain says the five failed banks will not need to raise any new capital because the counter-cyclical provisions put aside in growth periods will cover their needs. In Greece, the six biggest banks were tested, representing 90% of the country's banking system. In a press release, Greek Finance Minister Evángelos Venizélos said that five banks were clearly below or close to the threshold, adding that the nationalised ATE bank was currently being restructured with a view to privatisation. (M.B./transl.fl)