Brussels: Eight banks failed the European Union stress tests after regulators said they had a combined capital shortfall of €2.5 billion (Dh12.98 billion).
The banks were found to have insufficient reserves to maintain a core tier 1 capital ratio of 5 per cent in the event of an economic slowdown, the European Banking Authority said.
The assessments are the first by the European Banking Authority since it was set up earlier this year. Last year's tests by its predecessor were criticised for not being tough enough because banks were shown to need only €3.5 billion more capital, a tenth of the lowest analyst estimate. Banks that fail the stress test must present a plan to raise more capital within three months.
"Any institution failing the stress test could be left facing funding challenges, the potential loss of stakeholder confidence and the risk of a credit-rating downgrade," Steve Pearson, a partner at PricewaterhouseCoopers LLP, said in a note to clients. "Experience has shown the premium the riskier institutions might have to pay to retain some of their depositors could increase to an unsustainable level."
S&P test
Rating company Standard & Poor's own stress test, published in March, found European banks would need as much as €250 billion in fresh capital if faced with a "sharp" increase in yields and a "severe" economic downturn. In contrast, a survey of 113 investors by Goldman Sachs Group Inc last month showed they expect banks to raise €29 billion after the tests.
