The European Central Bank (ECB) announced the findings of its stress tests on European Banks yesterday. These stress tests were designed to see if banks would fail in the event of a recession, drop in house prices and a rise in unemployment. About 130 banks across Europe were tested and 25 banks failed…
Twelve of the banks that failed the stress test have already taken steps to improve their balance sheets. The remaining 13 have been named and shamed as they are unprepared and so could suffer or even fail in the event of a serious economic event. The ECB does not wish to see bank failures as unlike most business failures, bank failures can have serious consequences for the economic systems of the country in which they are based and potentially costs tax payers billions of euros in bail outs.
The worst hit country was Italy with 9 out of the 25 failing banks and the one that needed to raise the most capital (Monte dei Paschi) which needs to raise a further EUR2.6 billion to pass the test. As I write Monte dei Paschi’s shares have been suspended after falling 15% leading to further doubt over the future of the bank and the possibility of it being the first casualty of this round of tests.
The positive news is that none of the major banks failed their tests which have become increasingly more stringent since the first post global economic crisis in 2009.