Eight banks fail latest Europe stress test

More than 90 per cent of Europe's banks have passed the latest round of stress tests designed to flag up weaknesses in institutions' ability to survive large future shocks.

The test results showed just eight banks failing the test as they did not hold the minimum five per cent core tier one capital ratios needed at the end of April this year. Those banks collectively require a further €2.5bn (£2.2bn) of additional capital to bring them up to the level needed.

The figure – just nine per cent of the 90 European banks tested – was lower than commentators anticipated.

Five banks in Spain, two in Greece and one in Austria failed, against expectations for five to 15 banks to fall short and need to raise €10bn more capital.

Another 16 banks achieved a ratio of between five and six per cent, the European Banking Authority, which conducted the tests, said.

The results have drawn criticism that the tests are still not stringent enough. The first round of tests lost credibility after it gave Ireland's banks a clean bill of health just months before the entire sector required a multi-billion euro bailout.

"It wasn't the solution to restore confidence. What was needed was for more banks to fail and for more capital to ultimately be raised," said Michael Symonds, credit analyst at Daiwa Capital Markets.

When banks were tested by their capital held at the end of last year, 20 failed to hold the minimum five per cent core tier one capital ratio.

That was 22 per cent of the total, with a combined shortfall of about €26.8bn.

The EBA said a net €50bn of extra capital had been raised by all banks between January and April this year.

However, all the UK's major banks had passed the stress test.

Barclays, HSBC, Lloyds Banking Group and RBS have all come through the test analysis successfully, but RBS trailed the other three lenders in its core tier one capital ratio.