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 (Results
of 2014 EU-Wide-Stress Test) of the EU-wide stress test
were reported on Sunday by the
European Banking Authority (EAB) and the European Central
With nine banks failing the test, Italy represented more than €10
billion of the capital shortfall.
Other balance sheets that weren't up to
three banks in Greece
three in Cyprus
two in Slovenia
two in Belgium
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
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
The Monte dei Paschi
is pictured in Siena
August 16, 2013.
"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
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).