Five Spanish banks fail stress test.
Sixteen financial institutions in Europe are on high alert and at high risk in the event of a crisis.
Spanish banks, whose economy and banking system are still struggling to recover from the collapse of the housing market, were the ones that failed the most stress tests in the European Union. According to the European Banking Authority (EBA), five credit institutions in the country failed the tests because they had capital buffers of less than 5% of their risk-weighted assets. The assessment indicates that banks with capital buffers below this level will need to raise new funds by the end of the year through the sale of shares, businesses, or assets.
Of the five banks that failed, the one in the most critical situation was Caja de Ahorros del Mediterráneo (CAM), which would need to raise €947 million to meet the minimum requirements of the tests. Banco Pastor would also be in a complicated situation in an adverse scenario and, according to the test results, would have to raise €317 million. The other Spanish banks that failed were Grupo Caja3, which would need to raise €140 million, Unnim, which would have to increase its reserves by €85 million, and Catalunya Caixa, which would need to raise €75 million. Seven other credit institutions in the country narrowly missed the assessment, presenting capital buffers between 5% and 6% of their risk-weighted assets.
Two Greek banks and one Austrian bank also failed the tests, according to the EBA. The Greek bank ATEBank would need to raise a total of €713 million, as its reserve ratio would be in deficit by 0,8% under adverse conditions. Another Greek bank, EFG Eurobank, also failed and, according to the EBA, would need to raise €58 million to comply. The last to fail was the Austrian bank Volksbank, which would need to raise €160 million to increase its reserve ratio from 4,5% to 5%.
Besides Spain, the countries with credit institutions that narrowly passed the tests are: Cyprus (one bank), Germany (two banks), Greece (two banks), Italy (one bank), Portugal (two banks), and Slovenia (one bank).
In Ireland, which received an international bailout package last year after a crisis in its banking system, all three banks evaluated passed the tests.
The eight banks that failed the stress tests would need to raise a total of approximately €2,5 billion in capital to reach the minimum level of financial soundness required by the institution. The tests determine that, in a scenario of adverse economic and financial conditions, each of the evaluated banks must have reserves equivalent to 5% of Tier 1 capital (equity plus reserves).
The small number of low ratings in the latest round of stress tests reflects the fact that banks struggled throughout last year to raise new funds in anticipation of the tests. The EBA said on Friday that the banks involved in the tests raised around 60 billion euros in the first four months of 2011. If the tests had been conducted based on the banks' financial positions on December 31, 2010, 20 credit institutions would have failed with a total capital shortfall of 26,8 billion euros, according to the European Union regulator.