LONDON – Europe’s banks must prove they hold more than five per cent of high-quality capital in order to pass a test aimed at reassuring taxpayers they can withstand future recessions.
Published: Sat 9 Apr 2011, 11:27 PM
Updated: Tue 7 Apr 2015, 3:31 AM
By
Huw Jones And Steve Slater (Reuters)
The European Banking Authority (EBA) on Friday named 90 banks which must undergo the so-called “stress test” in an attempt to repair the sector’s image after massive bailouts.
It will decide how many need to raise capital, sell assets or shrink their loan book to make them strong enough to withstand economic headwinds.
The EBA is keen to be seen as tough after last year’s health check flopped and will use a definition of capital that is more stringent than last year.
The five per cent pass mark for core Tier 1 capital is comparable to the standard set for US banks under their recent exam, the EBA said. The US results were released to the banks last month but not made public. Banks that came through strongly were allowed to bump up dividends or buy back shares. In contrast, European banks are being encouraged to keep conserving capital.
Europe’s regulator, running the stress tests for a third time since the financial crisis unfolded, will exclude much of a hybrid debt-equity type of capital used by many German state-owned banks and seen as a controversial issue.
The results will be released in June.
The exercise aims to draw a line under the bloc’s banking problems and is already having an impact.
Banks are bolstering their capital ahead of the test. Even though few are expected to fail, being close to failing could prompt weak banks to raise capital. Plans unveiled by the end of this month can be included in the heath check. Germany’s Commerzbank AG and Italy’s Intesa Sanpaolo this week unveiled plans to bolster their capital levels.
Banks that fail, or some that only narrowly pass, are expected to work with national regulators to fix the problem.
EBA Chairman Andrea Enria, who briefed EU finance ministers in Hungary on the plan on Friday, wants governments to have plans ready to fund the banks which need it.
Banks have until the end of this year to discuss raising cash privately, selling assets or deleveraging to bolster their capital position.
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Publish date : 2024-10-13 17:00:00
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