Bank stress tests
July 16, 2011
The International Monetary Fund (IMF) has called on Europe to strengthen banks that failed or nearly failed important "stress tests."
Eight European banks are not strong enough to withstand a prolonged recession and need to raise 2.5 billion euros in capital, an industry health check aimed at reviving investor confidence showed on Friday.
The stress test of 90 banks in 21 countries – representing 65 percent of the assets in Europe's banking sector – showed five banks in Spain, two in Greece, one in Austria and one in Germany failed the test, although the German result is disputed by the bank in question and is therefore not counted along the eight banks that officially failed the test.
Between five and 15 smaller lenders had been expected to fail the test. All big banks passed, as expected.
IMF reaction
The International Monetary Fund called for all "necessary measures" to be taken to "address weaknesses" at banks which failed, or narrowly passed the test.
The IMF has warned Europe that it is taking too long to rebuild its banking system and the threat of the Greek debt crisis spreading to bigger countries, such as Spain and Italy, was still very real.
"The outcome of the exercise reflects efforts made by individual institutions and national supervisory authorities to strengthen bank balance sheets, but more needs to be done," the IMF said.
The Washington-based Fund praised the European Banking Authority (EBA), the regulator running the test, for its "strengthened methodology," after the 2010 tests were judged to be too soft.
German regional bank fails
Germany's financial market regulator, BaFin, said that one of 13 German banks tested did not meet the requirements.
It did not immediately identify the bank that flunked, but the only bank missing from the list of 12 that passed was the state-owned regional bank, Helaba, which had already said earlier this week that it would not pass.
Helaba, on its website, however, disputed the results of the test. Helaba then decided against the publication of its result, said the German finance ministry in a separate statement.
The EBA, earlier, had told Helaba that it did not accept that some of its assets counted as core capital. Helaba asserted that its core tier 1 capital ratio was 6.8 percent, well above the EBA's minimum mark of five percent.
It was not clear on Friday how this dispute would play out when further details of the report are released.
The banks that didn’t make it
The five Spanish banks that flunked the EBA stress test make up the bulk of the failures, but the Bank of Spain said they would not need additional capital because the sector was already being restructured.
Four regional savings banks failed the tests – Caja Mediterraneo (CAM), Catalunya Caixa, Unmin and Caja Tres – along with Banco Pastor. Seven other banks just barely reached the minimum requirement of the core tier 1 capital ratio of five percent. A total of 25 Spanish banks were tested, the largest number of any country. Bank of Spain governor Miguel Angel Fernandez Ordonez said the results were "what we expected."
Greece's number two bank, EFG Eurobank, failed the test, along with ATEBank, and pledged to boost its capital. ATEBank said it would proceed with a bond issue worth some 235 million euros. ATEBank flunked the test with a capital ratio of minus 0.8 percent, the worst of any bank.
Austria’s Volksbank, which failed, said it was unsatisfied with the result of the test, but said it would have passed if its current efforts to strengthen capital ratios had been taken into account. It had a 4.5 percent capital ratio.
Ireland's three main banks passed the test after being recapitalized following the Irish financial crisis.
Author: Gregg Benzow, Catherine Bolsover (dpa, AP, AFP, Reuters)
Editor: Andreas Illmer