Stress, stress, stress tests
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Seven of the 91 European banks that underwent stress tests have failed the healthchecks, the Committee of European Banking Supervisors (CEBS) has said.
The actual report can be found here.
They include five Spanish banks - Diada, Espiga, Banca Civica, Unnim and Cajasur. The other two were Germany’s Hypo Real Estate and Greece’s ATEbank.
The five Spanish banks that failed, out of 27 tested, were regional savings banks, which racked up heavy losses following the collapse of the Spanish property market.
The tests assessed banks’ ability to survive future economic shocks - although critics argue the tests were not rigorous enough.
The stress test focuses mainly on credit and market risks, including the exposures to European sovereign debt - The most severe test looked at an adverse scenario, assuming 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 UK’s four major banks - RBS, Lloyds, HSBC and Barclays - were among the banks tested and all passed the tests, which were carried out by the Financial Services Authority (FSA) on behalf of the EU.
Although Fidelity strategic bond fund manager Ian Spreadbury is more pessimistic: “With the euro still under pressure and markets poised to strike southern Europe, it was always unlikely that the ECB would allow a major problem with the European banking system to be revealed in the tests but the failure of only seven banks and only €3.5bn of fresh capital needed to be raised by those banks suggests that the test methodology did not go far enough. While the announcement of the results has met with a muted response from markets, the more lasting issue may be that the tests may not have drawn the line in the sand that regulators had intended.”
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