Principle theme

26 July 2010

EU banks go through stress tests

According to preliminary results, just 7 of 91 major banks in the European Union have flunked the closely watched stress tests initiated by the Committee of European Banking Supervisors earlier this week.

If confirmed, the results may well be touted by stock markets as something that “surpassed expectations”, experts said, quoting Goldman Sachs as forecasting the flop for 10 banks rather than 7.

Failing to pass the stress tests were, in particular, Germany’s Hypo Real Estate Bank and 5 Spain-based banks. In contrast, Swedish and French banks, including BNP Paribas, Societe Generale, BPCE and Credit Agricole, proved to be one of the EU’s most reliable banks, the tests revealed.

In a statement on Saturday, the French Central Bank voiced satisfaction about the fact that the country’s banks will be able to contribute to the national economy in the face of a new possible array of economic woes at home and abroad.

The results of the stress tests were deliberately made public on Friday evening, when trading sessions at the European stock exchanges came to a close. It helped to prevent financial markets from facing unnecessary risks following the publication of the results, experts explained. European regulators checked out 91 banks to see if they hold enough capital to withstand potential new shocks in the future – something, analysts argue, makes sense given that the banks account for 65 percent of the European market, measured by assets.

Aside from 16 EU countries, the tests were also carried out in financial organizations in Britain, Denmark, Hungary, Poland and Sweden. European authorities expressed hope that the test results would ease the fears of investors already dismayed by Greece’s foreign debt crisis and possible repercussions in Italy, Spain and Portugal.

The so-called second wave of the global economic meltdown is also on the cards, commentators say, adding that the test additionally helped assess the European banking system’s dependence on state support.

In Moscow, expert Alexei Terekhov says that the test results are unlikely to damage the European financial markets.

"With stock markets still awaiting the results, the EU economies will not be directly affected by the publication of names of those failing to pass the tests referring to the 7 state-run banks. In possible times of financial troubles, the state is almost sure to intervene and help the banks stay afloat," said Terekhov.

The 7 banks will also be propped up by European regulators, who have already signaled their readiness to contact the banks’ chief executives to discuss the matter.

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