…. by Jim W. Dean, VT Editor, … from Russian Today, Moscow
[ Editor’s Note: This news certainly comes as no surprise. The reports on the countries with little, none, or even declining growth have been out for the last two quarters.
I have been watching for mentions on how the stupid Russian sanctions boomerang on a very fragile EU economy — especially those countries right on the edge like Italy — could be the straw that breaks the camel’s back, where another banking crisis could emerge.
It is good that these stress tests are being done, as those affected are usually trying to hide the bad news to keep whatever business they have going. Being publicized as a stress test failure… you can just imagine what happens to the pending business deals of the last year that a bank has been trying to close. Those become dead deals.
Can these banks pull in $31 billion additional capital? Although that is a nice thing for watchdogs to be able to calculate, what happens if they cannot? Are they forced to go on the auction block, and if so, who would want to buy into such a bank?
We had been suspecting that the bank conditions were worse than reported, as they have a myriad of ways to hide bad loans… for a while. But time eventually reveals all.
This is why I had predicted that the loss of the EU food export markets to Russia would take down all the affected agricultural companies that were on their last legs, and that would pull the weaker banks further down with them. It seems we did not have to wait long… Jim W. Dean ]
– First published … October 27, 2014 –
Nearly one in five leading European banks have failed the stress test conducted by the European Central Bank, which revealed a $31.2 billion (€24.6 billion) capital gap in 25 banks showing they’re not ready to withstand a three-year recession.
The results of the EU-wide stress test were reported on Sunday by the European Banking Authority (EAB) and the European Central Bank (ECB).
With nine banks failing the test, Italy represented more than €10 billion of the capital shortfall. Other balance sheets that weren’t up to snuff were three banks in Greece, three in Cyprus, two in Slovenia, two in Belgium, and one each in Austria, Germany, France, Spain, Portugal and Ireland.
Of the total 25 banks that failed the test, 12 have since come up with the necessary additional capital to pass. The other 13 have two weeks to submit a blueprint of how they plan to boost their capital, to be presented to the ECB for approval in early November. Approved banks will then have nine months to fix their capital holes.
The main goal of the stress test was to identify which banks need to boost core equity capital out of the 123 top lenders. The assessment weight a lender’s key risks, including liquidity, leverage and funding, as well as asset quality and the ability of banks’ balance sheet to resist stress scenarios.
“The Comprehensive Assessment allowed us to compare banks across borders and business models,” ECB Supervisory Board Chair Daniele Nouy said in a statement. “The findings will enable us to draw insights and conclusions for supervision going forward.”
Ten banks have taken measures to brush up their finances from their balance sheets at the end of 2013. The worst affected was the Italian bank Monte dei Paschi, which had a capital shortfall of €2.1billion.
“This unprecedented in-depth review of the largest banks’ positions will boost public confidence in the banking sector,” said ECB Vice-President Vitor Constancio, adding that “this should facilitate more lending in Europe, which will help economic growth.”
The asset quality review was conducted is the European Central Bank prepares to become the official supervisor of Europe’s top 130 lenders in a banking union, due to begin in on November 4.
Eight banks failed a similar stress test examination in 2011 with a combined deficit of €2.5 billion ($3.2 billion).