The latest round of stress tests for Europe’s 130 largest banks found that 25 of them are in need of additional capital.
The European Central Bank (ECB) on Sunday announced the hotly-anticipated results of its assessments of the region’s banks, ahead of its takeover of supervisory responsibility in November.
The ECB reports a total capital shortfall of €25 billion at 25 the banks that participated in the exercise, which included both an asset quality review (AQR) and a stress test.
Along with the capital shortfall, the ECB says that the asset quality review showed that the book values of banks’ assets need to be adjusted by another €48 billion (€37 billion of which did not generate capital shortfall).
“This unprecedented in-depth review of the largest banks’ positions will boost public confidence in the banking sector,” said Vítor Constâncio, vice-president of the ECB. “By identifying problems and risks, it will help repair balance sheets and make the banks more resilient and robust. This should facilitate more lending in Europe, which will help economic growth.”
The ECB notes that 12 of the 25 banks have already covered their capital shortfalls; increasing their capital by €15 billion so far this year.
The bank also said that its stress tests showed that a severe scenario would deplete the banks’ top-quality, loss-absorbing Common Equity Tier 1 (CET 1) capital by about €263 billion, which would reduce the banks’ median CET1 ratio by four percentage points from 12.4% to 8.3%.