8 banks flunk European stress test
Baku, July 19 (AZERTAC). Eight of 90 banks flunked stress tests projecting how they would fare in another recession, and 16 more barely passed — but the results proved controversial.
Some countries challenged the results as inaccurate and overly pessimistic, while analysts worried the tests did not account for the key risk of a Greek debt default.
As it presented the results Friday, the European Banking Authority said the failing banks should quickly take steps to thicken their financial cushions by a total of 2.5 billion euros ($3.5 billion). The banks that barely passed would also have to boost their finances in coming months.
But while markets appeared sanguine about the results — the euro barely moved — experts warned that the tests were likely not rigorous enough because they did not simulate a debt default, which many expect is inevitable in Greece.
"The publication of these results will not assuage investors' fears over the resilience of the EU banking sector," said Marie Diron, senior economic adviser for Ernst & Young.
She said the tests were useful to single out particularly weak banks, but noted that a national debt default was "the single greatest risk facing the European banking sector at present."
EU leaders have begun to accept the need for a partial and temporary default by Greece as part of a second rescue package for the ailing country. Financial markets are worried about the potential impact, however, and the stress tests were meant to lift some of the uncertainty.
Spain, whose many local savings banks have been closely watched by analysts, fared worst in the tests. Five banks failed to prove that their capital buffers were strong enough. They are Catalunya Caixa, Caja de Ahorros de Mediterraneo, Banco Pastor, Unnim and Group Caja3.
Two Greek banks, EFG Eurobank and government-owned ATEBank, also failed, as did Austria's Oesterreichische Volksbank.
The results did not go down well with many national regulators and banks, who complained about excessively rigid terms.
Bank of Spain Governor Miguel Angel Fernandez Ordonez insisted none of the five banks that failed needed to raise new capital. He complained that the EBA had refused to count general provisions, or money that Spain requires to set aside for just such a crisis as the one envisioned in the stress tests.
"I refuse to accept that the five failed the test," the governor said.
The EBA lacks the power to force banks to raise more capital — whether from investors or governments — or to make them merge or sell businesses. Only their national governments can do that, and analysts say the key to the stress tests is whether governments act on the results.
German officials said they saw no reason for any of their banks to take action, even though two, HSH Nordbank and Norddeutsche Landesbank, fell into the "barely passed" category. One more, Helaba, withdrew after the EBA refused to count 1.9 billion euros of its 4.5 billion euro capital cushion in a dispute over whether non-voting government stakes could be considered core capital, pushing it below the pass line.
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