–Says Regulators Should Call On Near Fails To Bolster Capital
–Says EU Banks Under Severe Strain
LONDON (MNI) – The EU-wide stress tests released today should help
reduce market uncertainty, European Banking Authority Chairman
Andrea Enria said here today.
The EBA chief, however, admitted that the sovereign debt situation
had deteriorated in recent weeks and that this had impacted adversely on
the risk outlook for EU banks.
“The tests should reduce market uncertainty,” Enria said, but added
later during a press conference here that “We are aware that the risk
outlook for European banks has significantly deteriorated in recent
weeks.”
Enria defended the tests as a rigorous examination:
“The scenario is quite severe in light of recent developments but
clearly the sovereign debt situation has moved on since the scenario was
set,” Enria said.
Enria conceded that the EU banking sector is under “severe strain”.
Initial market reaction to the tests appeared favourable, but has
since become more ambiguous, suggesting markets are still digesting the
results. One analyst said that bank analysts as well as ratings agencies
would be running their own tests and drawing conclusions.
While the tests did not provide for a sovereign default, despite
current market expectations that Greece most likely will now do
so, the tests did provide for the impact of ‘severe sovereign stress’ on
banks’ capital positions.
As the EBA puts it:
“Sovereign debt held in the trading book would be subject to market
risk haircuts which reflected both the interest rate movements in the
adverse scenario and widening of sovereign spreads.”
Sixteen banks only passed the tests by a narrow margin, alongside
the eight that failed. But Enria said that national regulators should
now be calling on these to bolster their capital position.
“The EBA has also recommended that national supervisory authorities
request all banks whose CT1R is above, but close to, 5% and which have
sizeable exposures to sovereigns under stress, to take specific steps to
strengthen their capital position.”
–London Bureau; Tel: +442078627492; email: ukeditorial@marketnews.com
[TOPICS: M$X$$$,MGX$$$]