Eight of 90 European banks have flunked stress tests

Eight out of 90 European banks have failed stress tests designed to ensure they can withstand another financial crisis. Five banks in Spain, two in Greece and one in Austria "flunked" the test.

The European Banking Authority (EBA), which carried out the healthcheck, said another 16 banks were in the danger zone. The EBA called on national financial regulators to ensure that capital shortfalls would be quickly resolved.

In Austria, the Oestereichische Volksbank failed the test, while in Greece two state-controlled banks - ATEbank and EFG Eurobank - fell at the hurdle. In Spain, Catalunya Caixa, Pastor, Unnim, Caja3 and CAM failed, with seven others just scraping through the test.

However, Bank of Spain governor Miguel Ángel Fernández Ordóñez said there was no need to inject further capital into the banks as the sector was already undergoing a fundamental restructuring.

The European Banking Authority added that 16 banks only just passed the tests. All the banks should "promptly" take steps to strengthen their financial cushion, the EBA said.

"The Bank of Portugal has decided the banks have to reinforce their base capital to exceed comfortably the five percent minimum base of these tests," explained Carlos Costa, Governor of the Bank of Portugal.

Banco Comercial Portugues, the country's largest listed bank, and Espirito Santo Financial Group, will strengthen their balance sheets within three months. Debt-heavy Portugal took a 78bn euro bail-out earlier this year. Its economy is forecast to contract 4% over the next two years.

The tests are a key element in fighting Europe's debt crisis, intended to identify weak banks and ensure they are made robust enough to survive a possible default on government bonds by heavily indebted countries such as Greece.

See also: European banks face stress test (July 8, 2010)

Source: BBC News
Date: 16.07.2011 [301]