Eleven banks probably failed ECB stress test

Spanish newswire EFE says eleven banks probably failed the European Central Bank’s stress test. Details on which banks did  not make the grade will be published on Sunday. If 11 failed, that would be nearly 10% of the 130 banks being tested.

EFE says banks in Greece, Italy, Austria, Portugal, Belgium and Cyprus did not pass the test.

Analysts believe Portugal’s BCP, Italy’s Monte dei Paschi de Siena, and Autria’s Volksbanken are highly unlikely to have passed. Media reports in Ireland suggest Ireland’s Permanent TSB may also have struggled to get through.

Nordbank and Commerzbank in Germany have also been mentioned by experts.

The ECB (European Central Bank) plans to unify the Eurozone’s banking market, and has implemented the stress test to determine how strong the currency bloc’s banking sector is.

European banks have raised record amounts of capital as they prepare for the tests. Failing banks will have to raise billions more to make sure their financial reserves are adequate.

The ECB described media reports on how many banks failed as “highly speculative.”

The ECB wrote on Wednesday:

“The comprehensive assessment, which consists of an asset quality review and stress tests of bank balance sheets, is not yet completed. No final results have been sent to banks involved. The results will not be final until they are considered by the Governing Council of the European Central Bank on Sunday 26 October, after which they will be published.”

What is a Bank Stress Test?

A Bank Stress Test is an analysis of a financial institution carried out under unfavorable economic scenarios to determine whether it has enough capital to withstand the impacts of financial shocks.

A stress test can be carried out by supervisory authorities, such as the ECB, or by banks themselves as part of their own risk assessment.

The tests can identify where the weaknesses are in the banking system at an early stage, so that preventive measures can be implemented either by the regulators or banks.