EBA stress test – 24 banks failed

The European Banking Authority (EBA) announced on Sunday that 24 banks have failed stress tests. The EBA has given them nine months to improve their finances or risk being closed down.

The European Banking Authority (EBA) is the European Union’s regulatory agency. It is headquartered in London, UK. Not to be confused with the European Central Bank (ECB), which is the Eurozone’s central bank.

The EBA’s assessment was based on the financial health of 123 European banks on December 31, 2013.

Since the end of 2013, ten banks have taken measures to bring their balance sheets up to the required standards. Of the remaining failing banks, all are within the Eurozone.

News update Oct 27, 2014: European bank shares on Monday initially surged on news of the results of the EBA and ECB stress test results, but later eased off.

All British, German and French banks’ capital levels are adequate. Lloyds Banking Group only just managed to scrape through.

The stress test aims to gauge the resilience of European Union banks to financial shocks, such as the 2008/9 financial crisis. The EBA can then better understand what vulnerabilities there are and repair them, thus making the EU banking sector stronger, which boosts confidence.

Italy’s Monte dei Paschi fared the worst, as it did in the ECB stress tests, whose results were also published on Sunday. The bank had a capital shortfall of €2.1 billion.

The following 14 banks must raise capital:

Italy: Banca Popolare di Vicenza, Banca Carige, Monte dei Paschi, and Banca Popolare di Milano.

Slovenia: Nova Kreditna Banka Maribor and Nova Ljubljanska Banka.

Greece: National Bank of Greece and Eurobank Ergasias.

Republic of Ireland: Permanent TSB.

Austria: Oesterreichische Volksbanken.

Belgium: AXA Bank Europe and Dexia.

Cyprus: Hellenic Bank Public Company.

Portugal: Banco Comercial Portugues.

The tests showed that EU banks’ CET1 (common equity ratio) fell from 11.1% at the beginning of the exercise to 8.5% after the end.

The EBA wrote:

“By disclosing these results, the EBA is providing unparalleled transparency into EU banks’ balance sheets, with up to 12,000 data points per bank, an essential step towards enhancing market discipline in the EU.”