Stress test banks asked to predict capital needs
EUROPEAN banks have been asked to estimate how much additional capital they would need under different scenarios, as part of stress tests aimed at reviving confidence in the ailing Eurozone.
Lenders were asked to estimate how much more capital they might need to achieve a Tier 1 capital ratio of six per cent at the end of 2011 under three different scenarios – a base scenario, an adverse scenario including two years of economic deterioration and an adverse scenario with an “additional sovereign shock”.
The letter has been sent to all of the 91 banks participating in the test, which is being coordinated by the Committee of European Banking Supervisors (CEBS).
The results of the tests are due to be published tomorrow afternoon after European markets close, in order to allow banks and regulators to clarify any capital-raising plans over the weekend.
Major listed banks, which face constant investor scrutiny, are expected to pass, but the tests may show the worst problems lie with smaller players such as Spanish cajas and German Landesbanks, which are mainly unlisted. German nationalised lender Hypo Real Estate, which is already being recapitalised, is also expected to fail the test, while analysts have raised questions over National Bank of Greece and Banco Popular.