The European Banking Authority does not specify who they are
Three European Union (EU) banks failed to meet mandatory capital requirements in a stress test that would theoretically wipe 496 billion euros from their buffers, the bloc’s banking watchdog said on Friday, cited by Reuters.
Bank stress tests became common practice in Europe and the US after the global financial crisis of 2008, when taxpayers had to bail out some under-capitalized lenders. They are now part of routine supervision to ensure that banks can still support the economy even in periods of stress in the markets.
The European Banking Authority (EBA) said the test covered 70 banks, 20 more than in 2021, representing around 75% of banking assets in the European Union. 57 of the banks are from the Eurozone and their test was monitored by the European Central Bank (ECB).
Most European banks emerged stronger from a stress test of how they would withstand a sharp economic downturn, giving them a solid footing to continue paying dividends and buying back shares, Bloomberg said.
The result draws attention specifically to several German lenders that ended the test with modest capital buffers.
Of the 14 German banks tested, 8 were below the EU average in terms of CET1 and gearing ratios, and 6 were above it. Those above the average are mostly subsidiaries of US banking giants such as Goldman and JPMorgan or financial divisions of companies such as Volkswagen Bank.
For most of the major European banks, the reduction in the Common Equity Tier 1 ratio was smaller than in the previous stress test. At Deutsche Bank, the decline narrowed to 5.28 pp from 6.2 pp, and at BNP Paribas the impact weakened to 3.92 pp. from 4.4 points. The Netherlands’ ING Groep NV saw a bigger decrease.
Change in CET1 in stress tests in 2021 and 2023. Chart: Bloomberg
French bank La Banque Postale, whose capital was almost completely wiped out under the adverse scenario, said the test did not reflect a change in a new accounting rule that would have cushioned the impact of market shocks.
The EBO did not name the three banks that failed to pass the test.
The stress test, which the watchdog described as its toughest yet, looked at the impact of a three-year scenario to 2025 of credit, market and operational risk losses on banks’ required core capital buffer. It includes an economic decline of a total of 6% and a sharp decrease in property prices.
Banks started the theoretical shock test with an average buffer of 15% of their risk-weighted assets, and during the test accumulated losses of €496 billion, which resulted in capital buffers being depleted by 4.59 percentage points to an average 10.4% at the end of the third year of the test. The decline is weaker than the 4.85 percentage points reached in the last stress test two years ago, which covered fewer banks.
Despite a total loss of €496 billion in the test, European banks “remain sufficiently capitalized to continue supporting the economy in times of severe stress,” the EBA said.
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2023-07-28 20:04:00
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