Results of the stress tests of the larger European banks published on Friday showed that all financial institutions in the EU-wide audit have passed the "negative scenario" of the European Central Bank.
The stress tests were conducted by the European Banking Authority (EBA) and the Single Supervisory Mechanism (SSM) to assess the health of the European banking system. The EBA said in its results published on its website that all 48 banks are beating the usual 5.5 percent animal ratio under unfavorable conditions.
The British bank Barclays reached the lowest rank in the test and achieved in the unfavorable scenario a quota of only 6.37 percent. The British bank Lloyds also developed badly at 6.8 percent. According to the results, the Bank of England commented that the results showed that UK banks could absorb the impact of the EBA's worst scenario.
The largest bank in Europe, Deutsche Bank, performed better than some forecasters predicted, with a core score of 8.14 per cent in an adverse scenario.
The EBA said in its adverse scenario that the bank's deleveraging at the end of 2020 was € 236 billion ($ 268 billion) and € 226 billion on a "transitional and fully utilized" basis.
The European Central Bank (ECB) added that the EBA test showed that European banks are now "more resistant to financial shocks".
Italian banks were also put to the test, but achieved satisfactory results, according to banking supervisors. Unicredit, Italy's largest lender, achieved an average pay rate of 9.34, while UBI Banca scored 7.42 percent. The lowest rating among Italian banks was Banco BPM's 6.67 percent.
The valuation was carried out by presenting the Bank's balance sheet data for the end of 2017 and looking at how they would withstand the burden of the EBA, which the EBA describes as "adverse market developments".
Theoretical market shocks such as a disorderly Brexit or sudden sell-off of real estate have been used as scenarios to examine bank balance sheets. Although no pass or fail mark was given, the core measure used is the core tier ratio of the banks.
The Tier 1 capital ratio is the ratio of the core capital of a bank to the total risk-weighted assets. Easier is the level of reserve funding that a bank can use to mitigate sudden shocks or losses.
In their tests, banks are measured at a core-tier ratio – 8% in the baseline scenario and 5.5% in the adverse scenario. Any number near or below 5.5% gives investors cause for concern.
Prior to this result, the Italian banks were the focus of attention due to their high level of non-performing loans (NPL). The EBA said in an earlier report that Italy's share of NPLs was 9.7 percent in the second quarter, almost three times higher than the European average.
Published in the Daily Times of November 5thth 2018th