Once again, Europe's banks had to prove how well they are prepared for crises. Overall, the capital buffers proved sufficient. But not every institute can relax and relax.
Europe's overseers have given the big banks in the EU a solid overall record of crisis resilience. In the Europe-wide stress test, which has been the toughest Europe-wide stress test to date according to the EBA, the capital buffers proved viable even at the most adverse conditions for most of the 48 institutions surveyed.
In general, European banks are better prepared for a new economic and financial crisis than they were just a few years ago, the EBA said when presenting the results on Friday evening in London.
The capital buffers of the eight German financial institutions in the test shrank significantly in the stress scenario compared to the institutions from other countries. The same applies to British banks. This is mainly due to the low profitability of these houses, said EBA statistics director Mario Quagliariello.
NordLB as the weakest German institute
The worst among the German institutes was NordLB. Its hard core capital ratio – which is a buffer that is fully available to banks in the event of losses – fell to 7.07 percent in a crisis scenario. The Landesbank of the states of Lower Saxony and Saxony-Anhalt, however, had gone through the tests of the German banks even with the weakest values. The lazy ship loan institute has been looking for investors for some time.
The Deutsche Bank stock market chart also came under pressure in the stress scenario. Their capital ratio shrank to 8.14 percent. Germany's largest financial institution also explained the relatively poor performance with a number of special factors: losses in the resolution unit, which covered the years 2018 to 2020, continued to be assumed for the settlement unit, which was closed in 2016. The one-time loss incurred in the fourth quarter of 2017 for the sale of the Polish business was also updated over the three-year period.
After passing through the crisis scenario at the end of 2020, Commerzbank would still have a capital buffer of 9.93 percent.
Formal diarrhea does not exist
On the basis of their balance sheets at the end of 2017, banks from 15 European countries had to calculate how much thinner their capital base would become within three years, when the economy collapsed, unemployment figures rose and real estate prices plummeted.
Formal diarrhea did not exist. As with the Pan-European stress test 2016, the supervisors had not set any standardized capital ratios that banks had to meet. Among supervisors, a core Tier 1 capital ratio of 5.5 percent is the minimum that banks should still be under stress.
Institutions that have proven vulnerable in the current stress test will look closely at the supervisors and may subsequently impose institution-specific capital surcharges.
In addition to Deutscher Bank, Commerzbank and NordLB, Germany had to provide data in the EBA test in addition to five institutions, all of which are also directly supervised by the European Central Bank (ECB): DZ Bank as the central institution of the cooperative sector, the three Landesbanks LBBW, BayernLB and Helaba as well as the state promotional institute NRW.Bank.
Focus on Italian banks
In a parallel test, the ECB, as the central banking supervisor for the euro area, examined a further 54 financial institutions, which it directly supervises. For these banks, the overseers do not publish detailed results.
Particular attention was paid to the Italian banks. Not only do they have a mountain of problem loans in their books where customers have difficulty repaying. Burden on Italy's banks could be their large holdings of bonds issued by their home country given the government's debt-to-GDP ratio in Rome.
Supervisors around the world regularly review how vulnerable banks would be in times of crisis. The tests should reveal risks on the balance sheets as early as possible. However, stress tests are not uncontroversial: which risks in the hypothetical scenarios are weighed heavily, is ultimately in the hands of the supervisors. And also that not all banks published results, meets with criticism.
la / dpa