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The European Banking Authority (EBA) published
today the results of its 2011 European Union-wide stress test of 90 banks in 21
countries - - accounting for over 65% of the EU banking system total assets. The
aim of the 2011 EU-wide stress test is to assess the resilience of the banks
involved in the exercise against an adverse but plausible scenario. Eight banks
failed the stress tests while the 3 Irish domestic banks passed.
Last July, a similar exercise met with wide
Spain has the largest number of failures, with 5
banks dropping beneath the 5% Core Tier 1 Ratio (CT1R) threshold, the EBA said.
Another seven Spanish lenders just scraped through with between 5% and 6%.
Two Greek banks and one Austrian bank also flunked the tests, the EBA said. In
addition to Spain, the countries with banks that almost failed are Cyprus (1
bank), Germany (2), Greece (2), Italy (1), Portugal (2) and Slovenia (2).
In Ireland, all three of the tested banks easily passed the tests.
For the 2011 exercise, the EBA allowed specific capital
increases in the first four months of 2011 to be considered in the results.
Banks were therefore incentivised to strengthen their capital positions ahead of
the stress test.
The 2011 EU-wide stress test results show that:
- At the end of 2010, twenty banks would fall below the
5% Core Tier 1 Ratio (CT1R) threshold over the two-year horizon of the
exercise. The overall shortfall would total €26.8bn.
- Between January and April 2011, a further net amount
of some € 50bn of capital was raised.
- Taking into account these capital raising actions
implemented by end April 2011
- Eight banks fall below the capital threshold of 5%
CT1R over the two-year time horizon, with an overall CT1 shortfall of €2.5
- Sixteen banks display a CT1R of between 5% and 6%.
On the basis of these results, the EBA has also issued its
first formal recommendation stating that national supervisory authorities should
require banks whose CT1R falls below the 5% threshold to promptly remedy their
capital shortfall. The EBA notes that this is not sufficient to address all
potential vulnerabilities at this point. Therefore, the EBA has also recommended
that national supervisory authorities request all banks whose CT1R is above but
close to 5%, and which have sizeable exposures to sovereigns under stress, to
take specific steps to strengthen their capital position. These would include,
where necessary, restrictions on dividends, deleveraging, issuance of fresh
capital or conversion of lower-quality instruments into Core Tier 1 capital.
The EBA will monitor the implementation of these
recommendations and produce progress reports in February and July 2012.
The 2011 EU-wide stress test provides an unprecedented
level of transparency on banks’ exposures and capital composition to allow
investors, analysts and other market participants to develop an informed view on
the resilience of the EU banking sector.
Following on the observation of inconsistencies in the
treatment of sovereign debt last year, the EBA issued new guidance during the
peer review phase. Specific guidance was given regarding the computation of
provisions for sovereign exposures in the banking book.
The data from the sample of 90 banks (Dec. 2010) shows the
aggregate exposure-at-default (EAD) Greek sovereign debt outstanding at €98.2bn.
Sixty-seven percent of Greek sovereign debt (and 69% of the much smaller
Greek interbank position) is in fact held by domestic banks (about 20%
refers to loans which are mostly guaranteed by sovereign). The aggregate EAD
exposure is €52.7bn for Ireland (61% held domestically) and €43.2bn (63%
held domestically) for Portugal. Importantly, EAD exposures are different from
similar exposures reported on a gross basis in the disclosure templates.
The Central Bank of Ireland today published the results of
the European Banking Authority (EBA) stress tests on Allied Irish Bank (AIB),
Bank of Ireland and Irish Life and Permanent (IL&P).
The Bank said the results of the tests show that the Irish
banks meet the stress requirements and do not require additional capital beyond
the requirement set in the Financial Measures Programme published in March 2011.
The results of the EBA stress tests take account of the recapitalisation
measures announced following the Prudential Capital Assessment Review (PCAR),
which required the banks to raise an additional €24bn to in order to achieve a
core tier 1 ratio of 6% at the end of 2013 in a stressed scenario.
RecapitalisationStressed Case Core Tier 1 at Dec-2012
RecapitalisationStressed Case Core Tier 1 at Dec-2012
results for Allied Irish Banks plc
results for Bank of Ireland
results for Irish Life & Permanent plc
Stress Test Summary: European Banking Authority report
Additional guidance to the methodological note
Bloomberg reports that the European Union plans
to force banks to disclose how they fare in future stress tests to prevent any
repeat of the last-minute withdrawal of Germany’s Landesbank Hessen-Thueringen
from this year’s exams.
Michel Barnier, the EU’s financial services chief, is seeking to empower
national regulators and the €opean Banking Authority to override professional
secrecy rules so that they can publish stress test data, according to a draft of
the plans seen by Bloomberg News. Under existing law, the banks retain ownership
of the information and decide what may be published.
Professional secrecy rules “shall not prevent” regulators from publishing
the outcome of stress tests, the document says. Authorities should also be
allowed to transfer the data to the EBA for publication, it says.
Bloomberg said Landesbank Hessen-Thueringen, known as Helaba, refused to allow
the EBA to release its stress-test data on July 13th in a dispute over the
regulator’s measurement of Core Tier 1 capital, the gauge by which banks are
said to have passed or failed the exercise. The bank said it was
“incomprehensible” for the EBA to exclude instruments that German regulators
counted toward lenders’ reserves.