“The situation of Italian banks may well be manageable, but there is need for bold policy action to stop the collapse in confidence and the spreading of uncertainty, which can result in a self-fulfilling prophecy”, Codogno said. For the first time, the European Union test consisted of the effect of conduct threats such as fines and settlements. “While a number of individual banks have actually plainly fared badly, the overall finding of the European Banking Authority – that Europe’s banks are resistant to another crisis – is heartening”, Anthony Kruizinga at PwC stated.
Advertisement
Responding to the tests the Bank of England said in a statement: “The results for the four banks are consistent with those of previous Bank of England stress tests”.
The ECB told BMPS, Italy’s third-biggest bank, this month that it must offload €9.6 billion of non-performing assets within two years.
The review and evaluation processes aim to ensure financial institutions have the right strategies to cover the risks they face.
The test covered 70 percent of European Union banking assets and mimicked a three-year financial and economic shock, with new elements such as potential fines and settlements added this time around. This year tit is a qualitative and quantitative capital evaluation that will be used as input in the annual supervisory review and evaluation process (SREP) conducted by the European Central Bank.
Just ahead of the release Monte Paschi announced that it had secured an underwriting agreement for its plan involving the sale of EUR9.2bn in bad loans and a EUR5bn capital increase. According to the EU Bank Recovery and Resolution Directive, a bank’s private creditors must accept losses of at least 8 per cent of the liabilities (a bail-in) before the state can intervene (bailout). With no set, pass or fail criteria, the EBA left it up to investors and regulators to interpret the results.
Italian bank Monte dei Paschi di Siena was the worst performer.
-The stress test results showed explicitly once again that OP Financial Group’s financial strength is on a solid basis. Both lenders have been going through an increasingly rough patch because of lower profitability in the first half of the year coupled with the added costs of restructuring.
Still, the headlines are unwelcome for the two Irish banks and particularly AIB.
Ultimately, what the tests are trying to show is whether the banks in question are financially healthy enough to stay up and running should the foreseeable worst-case scenario happen.
Banks have broadly passed the EBA test, but will they pass the market’s test? Critics haven’t been quieted about the methodology and its discrepancies in how banks are judged. In this adverse scenario simulation, a traditional pass-fail threshold was not implemented.
“The stress tests are abstruse in the merit and in the methodology”, Italian Bankers Association President Antonio Patuelli said.
Advertisement
However the EBA said that those covered this year will be facing tougher tests. Spain’s Banco Popular, Bank of Ireland and Austria’s Raiffeisen all ended the test listed below this level at 6.62 percent, 6.15 percent, and 6.12 percent, respectively.
