ECB Says 25 Smaller Banks Failed Stress Test

Nigel Thomas
27 Oct, 2014
New York City

European Central Bank released its second stress test report and said most banks in the euro zone met the requirements laid out in the stress test by the European Central Bank.

European Central Bank released its second stress test report and said most banks in the euro zone met the requirements laid out in the stress test by the European Central Bank.

The bank added 25 out of 130 banks failed this year’s stress test.

The central bank’s report focused on the undercapitalization at banks under certain economic scenarios and the ECB said most problems are at the smaller and medium-size banks.

The banks were required to have at least 5.5% of highest quality of capital to risk-adjusted assets.

And, the ECB said 16 banks have raised additional capital since the cut-off date of December 2013 balance sheet data and other nine banks have nine months to raise additional capital and meet requirements.

The total shortfall at the failed banks was €24.6 billion but the deficit falls to €9.5 billion after accounting for capital raised this year.

Banca Monte dei Paschi di Siena SpA led the problems and in all nine Italian banks failed the test. All Spanish banks met the requirements but banks in Greece, Cyprus and Slovenia made up the list of other failed banks.

The last stress test was conducted in June 2013 and since banks, which cover 80% of assets in the euro zone, have raised capital and sold assets to bolster their balance sheets.

Top 30 banks have raised €60 billion in the period and also raised additional €200 billion by selling assets.

However, the ECB report also said that the 130 banks had overstated the assets on the balance sheet by €48 billion, 2% of total assets.

The central bank is scheduled to take over as a supervisory authority across the euro zone from November.