7 European Banks Fail Stress TestFinance | July 24, 2010, Saturday // 16:52| views
Seven European banks failed the so-called stress test because in a “double dip” recession their "tier one" capital ratios would fall below 6%. File photo
Seven of the 91 European banks that underwent stress tests have failed them, BBC reports Saturday, citing the Committee of European Banking Supervisors (CEBS).
The tests assessed banks' ability to survive future economic shocks.
The 7 include five Spanish banks - Diada, Espiga, Banca Civica, Unnim and Cajasur. The other two were Germany's Hypo Real Estate and Greece's ATEbank.
All these banks would need a total of EUR 3.5 B of new capital to meet the standards required, CEBS said.
The weekend will be an anxious time for banks, as they wait to learn whether it will become easier or harder for them to borrow, when markets open on Monday, he added.
The stress tests were conducted on a bank-by-bank basis, in a move designed to reassure investors over the health of Europe's financial sectors, but some analysts say the tests were not strict enough.
The most severe test assumes a "double-dip" recession over the next two years, as well as a sovereign debt shock - some kind of financial crisis for European governments such as Greece.
The 7 banks failed because in this scenario, it was deemed that their "tier one" capital ratios - the strictest measure of capital - would fall below 6%, the threshold set for the test.
Banks that are supervised in the EU need to have a regulatory minimum of 4% tier one capital.
CEBS added that failing to meet the 6% threshold did not mean a bank was insolvent.
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