European Banking Authority: 24 European Banks Could Not Withstand Another Financial Crisis

October 26, 2014 18:34 UTC

The European Banking Authority (EBA) published today the results of the 2014 European Union (EU)-wide stress test of 123 banks. The health check was carried out on 123 European banks by the EBA to determine whether they could withstand another financial crisis. The results: over the three-year horizon of the exercise, 24 banks would fail the stress test – in other words, they could not withstand another financial crisis.

14 of these banks are in the Eurozone. The list of 14 includes four Italian banks, two Greek banks, two Belgian banks and two Slovenian banks. Nine Italian banks have failed the test, among them Banca Monte dei Paschi di Siena, underlining the fragile state of the country’s financial system.

The stress test is based on common macroeconomic scenarios and a consistent methodology, and it is accompanied by unparalleled transparency into banks’ balance sheets and the potential impact of severe but plausible shocks on them.

The full report (PDF) and a concise summary of the results can be downloaded from the European Banking Authority website.

Unparalleled Transparency into EU Banks’ Balance Sheets

The 2014 EU-wide stress test is coordinated by the EBA and is carried out in cooperation with the European Central Bank (ECB), the European Systemic Risk Board (ESRB), the European Commission, and the competent authorities from all relevant national jurisdictions.

The aim of the stress test is to assess the resilience of EU banks to adverse economic developments, so as to understand remaining vulnerabilities, complete the repair of the EU banking sector and increase confidence. On average, EU banks’ common equity ratio (CET1) drops by 260 basis points, from 11.1% at the start of the exercise, after the asset quality reviews’ (AQRs) adjustment, to 8.5% after the stress. By disclosing these results, the EBA is providing unparalleled transparency into EU banks’ balance sheets, with up to 12,000 data points per bank, an essential step towards enhancing market discipline in the EU.

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