October 27, 2014 - 12:59AM Jack Ewing and Landon Thomas
About 25 banks are believed to have failed the European Central Bank's financial tests, although many of them have already raised capital or made other moves to bolster their books.
The results of the review, which were due be disclosed overnight in Frankfurt, are being closely watched to determine whether Europe is finally taking the necessary steps to repair its dysfunctional banking system.
The year-long review is part of a broader effort to remove the uncertainty in the market that has hindered lending and weighed on the region's troubled economy. But the findings could unsettle markets if they show that more eurozone banks are in trouble than expected.
Europe was alight with speculation over the weekend about verdicts on the financial health of the region's 130 largest lenders.
The big question is which banks might fail the central bank's review and how much new capital might be needed for the banks to survive. Estimates of the capital shortfall varied widely, from about €10 billion ($14.4 billion) to as much as €50 billion.
The central bank's review was based on figures at the end of 2013. Banks that have not passed muster and have not taken steps to shore up their finances will have nine months to top up their reserves. Otherwise, they risk being shut.
The central bank noted the results would not be final until approved by its governing council on Sunday morning in Frankfurt.
"Until that time, any media reports on the outcome of the tests are by their nature highly speculative," it said.
Banks were informed of the preliminary results of the review and stress tests on Thursday. They will not know for sure whether they passed or failed until Sunday, shortly before the public disclosure.
Most analysts expected the shortfall to be relatively modest, in part because bankers have known for a year that the test was coming and have sold risky assets and raised more capital, money that is available to absorb losses and is crucial to a bank's survival in a crisis.
"The number of banks that would need to raise additional capital will be limited," analysts at Barclays said in a note to clients on Friday. "This is due to the substantial pre-emptive measures that the banks have already undertaken."
Betting on which banks would do better or worse than expected was rampant on Friday. Trading was suspended on Friday in shares of the Italian bank Monte dei Paschi di Siena after they jumped more than 10 per cent on the strength of speculation that the bank would fare better than expected under European Central Bank scrutiny.
In the end, 13 out of 150 banks failed the stress test. 25 technically failed, but of those, 12 have raised enough capital to pass since Jan 1 which was the cut-off for the test.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
They should learn from Australia, the government put our banks through the new Basel 3 stress test, they failed miserably, naturally you would think the government would tell them to get their act together, instead the government introduced a $380 Billion bailout at call for them.
They should learn from Australia, the government put our banks through the new Basel 3 stress test, they failed miserably, naturally you would think the government would tell them to get their act together, instead the government introduced a $380 Billion bailout at call for them.
Problem fixed :/
Australian banks are the envy of the world and the pinnacle of what a banking system should be. The banks have used their resources wisely. And remember, every debt is an asset, so the more mortgages they write, the better, particularly if they're big.
Australian banks are the envy of the world and the pinnacle of what a banking system should be. The banks have used their resources wisely. And remember, every debt is an asset, so the more mortgages they write, the better, particularly if they're big.
Who's sock are you again?
You're a half wit.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
Australian banks are the envy of the world and the pinnacle of what a banking system should be. The banks have used their resources wisely. And remember, every debt is an asset, so the more mortgages they write, the better, particularly if they're big.
Based on market action so far, no one gives a Shite...
It really wasn't too bad, the worst bank being Monte dei Paschi di Siena, which was found to have a capital shortfall of 2.11 billion euros.
Quote:
THE European Central Bank says 13 of Europe's 130 biggest banks have flunked an in-depth review of their finances and must increase their capital buffers against losses by 10 billion euros ($A15.00 billion).
THE ECB said 25 banks in all were found to need stronger buffers - but that 12 have already made up their shortfall during the months in which the ECB was carrying out its review. The remaining 13 now have two weeks to tell the ECB how they plan to increase their capital buffers. The ECB checked the worth of banks' holdings and subjected the banks to a stress test that simulates how their finances would fare in an economic downturn. The exercise is aimed at strengthening the banking system so lenders can provide more credit to companies, boosting the weak European economy. The economy has been plagued both by banks' unwillingness to lend at affordable rates and by weak demand from companies that see no reason to risk borrowing.
No, he is right. Our banks have been doing what banks are supposed to do - lend money responsibly into the business and retail sectors of the economy. It's our governments job via the RBA to protect the banking system from collapse - the RBA has always been the banks "lender of last resort" to stabilise the system in a black swan event.
If our banks stopped lending our economy would tank, as is happening right now in Europe and to a lesser extent the USA.
If our banks lend irresponsibly our economy will tank when the bad loans reach a level that swamps their capacity to write off debts and still retain sufficient capital to meet the regulators standards, and importantly maintain market confidence.
Banks have to operate in a fairly thin zone for the betterment of the economy, and of course to reward those who have invested in them.
Do you have a better system that will do all of that?
This guy is a troll trying (failing) to make the non-bears look silly. Uses very similar terms and language to a regular commentator at macrobusiness. The housing market starting to make him a little unhinged perhaps.
People often worry about the banking system coming under stress.
This is precisely what the various stress tests, including those the IMF have previously spoken of and precisely what they simulate — they’re only theoretical exercises, they’re not the real thing — but those exercises are basically persistently done a few times now and have come up with the answer that the banking system would suffer a certain degree of losses but the banks would remain solvent.
Probably the worst that would happen is that they might need to get a bit of capital to make sure they remain above regulatory minimums but they don’t even go close to being insolvent, so I think a big asset price downturn usually does amplify whatever other downturn you’ve got, but we’re in as good a position as you could hope to be in to accommodate if that ever did occur and it does not seem to be occurring at the moment.
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