Eight of 90 European banks have flunked stress tests that project how they would fare in another recession, and 16 more barely passed, Europe's banking regulator said Friday.
The failing banks should "promptly" take steps to strengthen their financial cushions against losses, the European Banking Authority said as it released the results.
The banks that barely passed may also face pressure to strengthen their finances.
The EBA lacks the power, however, to force banks to raise more capital — whether from investors or governments — or to make them merge or sell businesses. Only their national governments can do that.
The tests are a key element in fighting Europe's debt crisis. Officials want to identify weak banks and make them strengthen their finances so they could survive a possible default on government bonds by Greece or another heavily indebted country.
The test, run by national banking regulators, simulated what would happen to bank finances during a recession where growth falls more than 4 percentage points below EU forecasts. For the 17-country eurozone, that would be a drop of 0.5% this year and 0.2% next year.
Some said the tests were not tough enough because they did not include a scenario in which Greece defaults on its government bonds. That is considered a key risk for Europe's economy.
The banks were required to maintain a financial cushion of at least 5% of their loans, investments and other assets. The cushion — Core Tier 1 capital — is available to absorb unexpected losses and is a key measure of a bank's stability.
One bank, Germany's Helaba, pulled out of the tests in a dispute with the EBA over whether large part of the bank's capital in the form of non-voting holdings by government would count.
The failing banks should "promptly" take steps to strengthen their financial cushions against losses, the European Banking Authority said as it released the results.
The banks that barely passed may also face pressure to strengthen their finances.
The EBA lacks the power, however, to force banks to raise more capital — whether from investors or governments — or to make them merge or sell businesses. Only their national governments can do that.
The tests are a key element in fighting Europe's debt crisis. Officials want to identify weak banks and make them strengthen their finances so they could survive a possible default on government bonds by Greece or another heavily indebted country.
The test, run by national banking regulators, simulated what would happen to bank finances during a recession where growth falls more than 4 percentage points below EU forecasts. For the 17-country eurozone, that would be a drop of 0.5% this year and 0.2% next year.
Some said the tests were not tough enough because they did not include a scenario in which Greece defaults on its government bonds. That is considered a key risk for Europe's economy.
The banks were required to maintain a financial cushion of at least 5% of their loans, investments and other assets. The cushion — Core Tier 1 capital — is available to absorb unexpected losses and is a key measure of a bank's stability.
One bank, Germany's Helaba, pulled out of the tests in a dispute with the EBA over whether large part of the bank's capital in the form of non-voting holdings by government would count.
