Europese banken doorstaan stresstesten (en)
EU finance ministers meeting in Gothenburg on Thursday evening (1 October) said long-awaited stress tests show that the region's biggest banks have enough capital to survive another downturn.
European Central Bank president Jean-Claude Trichet said the news was "reassuring", while Swedish finance minister Anders Borg, whose country currently holds the EU presidency, declared: ""They are sufficiently capitalised."
The 22 largest banks in the EU - representing 60 percent of the region's banking assets - have been subjected to tests in recent months by the London-based Committee of European Banking Supervisors (Cebs) to assess their strength under an "adverse scenario".
The test results predict that were the EU's gross domestic product to contract by 5.2 percent this year and 2.7 percent in 2010, the 22 banks would face potential losses of €400 billion over the two years.
"However, the financial position and expected results of banks are sufficient to maintain an adequate level of capital also under such negative circumstances," the 27 ministers said in a statement.
Importantly, say the ministers, no bank would see its Tier 1 capital ratio fall below six percent under the adverse scenario, with current economic forecasts suggesting levels will remain well above nine percent.
Tier 1 capital ratio is a measure of a bank's core equity capital to its total assets, with current global banking guidelines - known as the Basel II accords - suggesting banks should maintain a minimum level of four percent.
While the tests were designed to see how banks would fair under adverse economic conditions, current forecasts predict the EU will contract by roughly four percent this year, with positive growth of 0.4 percent expected for 2010.
An exercise in deception?
The nature and delivery of the EU stress test results differ considerably from those completed in the US in May.
While the US results for individually named banks were released to the public - causing many to quickly raise capital levels before the publication date - in the EU no individual bank or country-by-country breakdown has been released.
European representatives at last week's G20 leaders' meeting in Pittsburgh managed to stave off US calls for greater capital requirements, fearing that European banks would struggle disproportionately with the extra burden.
Now they may point to these latest results as an indication that all is well, suggest analysts.
"This resilience of the banking system reflects the recent increase in earnings forecasts and, to a large extent, the important support currently provided by the public sector to the banking institutions," the 27 ministers said in the statement.