BANKS-1

ECB & BANKS STRESS TEST : 25 OF THE EUROZONE’S LARGEST BANKS HAVE FAILED THE COMPREHENSIVE ASSESSMENT.

One of Europe’s newer traditions consists of regulators “stress-testing” banks to ensure they would not fail, or require a taxpayer-funded bailout, if the economy were to sour quickly.

The latest probe into the viability of around 130 banks was released on Sunday.

About 25 eurozone banks failed the European Central Bank’s financial-health checks, although more than half of these lenders have taken the necessary steps to shore up their balance sheets this year, according to a person familiar with the matter.

Of these banks, 11 or 12 still have additional capital needs, according to the person.

There are no German or French banks among those dozen or so lenders, though there are Italian banks, the person said.

The asset-quality review and stress tests were based on bank data for the end of 2013, but many banks have since taken steps to raise capital.

 

The ECB found €136 billion in troubled loans banks had not fessed up to, bringing the European total to €879 billion ($1.1 trillion).

Italy will have to implement the biggest reclassification of loans (€12 billion), with Greek (€8 billion) and German banks (€7 billion) also challenged. 

Interpreting the results, even at aggregate level, is complicated by the fact that they are arrived at using data from the end of 2013—and much has happened since then.

Notably, many banks that thought they might fail the tests have raised over €45 billion in equity, strengthening them considerably.

That explains why only 12 banks will have to unveil plans to raise capital when 25 have apparently failed, including Eurobank in Greece, Monte dei Paschi di Siena in Italy and Portugal’s BCP, the only three with more than €1 billion to raise.

They now have to come up with plans to strengthen their balance sheets.

After the Eurozone crisis, the ECB is now regarded as the most credible institution in Europe at the moment.

SOURCE : ECB, THE ECONOMIST, WSJ, FT.

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