25 European banks fail stress test; 13 unable to make up buffers

A health check of banks across the European Union showed that 25 lenders, all from the euro zone, were too weak to withstand a three-year recession in a test aimed at drawing a line under the single currency’s area’s protracted debt crisis. The European Banking Authority (EBA), the EU’s banking watchdog that coordinated the stress test of 123 banks, said on Sunday the lenders that failed to maintain a core capital ratio of 5.5 per cent at the end of the test had a combined capital shortfall of $31 billion at the end of 2013. Twelve have managed to make up their shortfall, but 13 have two weeks to plug holes.

The main drivers for this impact are credit risk losses, which account for 440 basis points of CET1 ratio decrease and an increase in total risk exposure (110 basis points).

Statement by the EBA

The capital hole-plugging plans will need to be implemented within nine months, the EBA says. The test has been billed as a make-or-break moment for Europe’s banks after three previous exercises failed to root out weaklings that had to be rescued by EU bailouts. Italy fared worst with nine of its banks having a totals hortfall of$11.9b at the end of 2013. Three Greek banks – Eurobank Ergasias, National Bank of Greece and Piraeus Bank – had a combined shortfall of $11.02b.

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