EUROPE’S biggest banks have raised far more capital ahead of this year’s stress tests than they did last time their books were scrutinised, according to an analysis of capital markets activity by lawyers at Linklaters.
Banks have raised €34.7bn (£27.3bn) so far this year, 32 per cent more than they raised in the 12 months preceding the European Central Bank’s (ECB) 2011 stress tests.
Italian banks led the way, raising a total of €10.5bn. Greek banks were next, raising €8.3bn, and German lenders were third, raising €6.7bn.
“Following three years when new capital issuances have been declining, the capital raisings executed this year clearly show an acceleration by banks to improve their capitalisation in order to get the green light from the ECB,” said Edward Chan from Linklaters.
He believes some banks may fail the tests, as only one-quarter of the 66 banks in the least-capitalised countries raised capital successfully this year. If any banks do fail the ECB’s asset quality review or basic stress tests, the lawyers expect they will be allowed six months to find more capital or shed more assets.
If a bank fails the more stressed scenario, with a deeper recession, they will be allowed nine months to build a bigger capital buffer.
Any bank which cannot manage this may face regulators coming in to chop it down to size.