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European Stress Test Results: Spanish banks short of Capital, others okay to 5%

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The European Bank Association had earlier planned this release on June 15, but delayed the streess test results as it likely found that it was not in line with what was happening out there in Greece and then Italy, Spain and Portugal. anyway the requirement of Tier I of 5% was a low bar and thus the results asking for a $3.5 bln shortfall pointed out 8 such banks that could not make the low watermark for the test as well. Of the eight, 5 are from Spain.

Independent stress tests conducted on the three Irish banks AIB, Bank of Ireland and Irish Life and permanent showed the Irish Central bank that a Euro 24 bln is required for the banks over the next three years, confirming that their original plan was indeed a good one. A similar one now needs to be drawn for the Spanish banks and the breads and circuses patronised daily

The German Landesbanks and the Basel 3 struck Deutsche Bank also do not appear in the near defaulters. Also interestingly the blanket release of all items of collateral listed against each of the 91 banks does not seem to have materialised

The German bank Helaba has already declared its withdrawal from the test as its planned increases in Capital did not come through by April 2011 as required. As many as 16 banks were additionally caught as having Tier I capital of less than 6% in stressed scenarios ( of not more than 15% deterioration in markets and sovereign yields together over two years)

Euro 50 billion has been raised by European banks in the four months of 2011 to achieve this result at lax levels of 5% too. The end 2010 figures used as starting point of the test included Euro 160 bln of bailout cash for the banks as per the EBA report

Also the EFSE stands at a $1 tln and more may be required to take care of Spain, Italy and Portugal guarantees. EU has clamped down thus on conditions of fiscal discipline resulting in GDP contractions of 10-20% in Greece, Italy, Spain and Portugal. Portugal has been implementing such fiscal discipline unilaterally while others are fighting political battles ab asino lanum trying to disregard the obvious even fearing German unilateralism in the future

More than 60 of the 90 banks started with an end 2010 Tier I ratio more than 8% (Basel II not Basel 3 where RWA will increase by 120% to 150% for banks and thus ratios will fall 16-30% to 5.6% on definition alone)

Of the 16 near default candidates with less than 6% after including newly raised capital, another 7 are spanish increasin gthe chances of a systemic default in Spain not being attended as French and Gernman Banks hold th eGReek debt case while Italians suffered last week for their near default condition


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One comment on “European Stress Test Results: Spanish banks short of Capital, others okay to 5%

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This entry was posted on July 16, 2011 by in Financial Markets.


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