European banks need Tier One ratio
October 12, 2011, Wednesday
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EUROPE'S banks will have to achieve a significantly stronger capital position under a quick-fire regulatory health check and may need to raise some 100 billion euros (US$137 billion), banking and regulatory sources said yesterday.
The European Banking Authority wants banks to hold a minimum core Tier One ratio of 7 percent under a recession scenario, and those who fail will be asked to bolster their capital, two banking sources said.
The data was requested on Friday and banks have been asked to submit it by the end of yesterday, three sources said. The data is based on the end of June.
"A significant number of banks are expected to fail the stress tests," one of these sources said.
A "stress test" of 90 banks run by the EBA this summer was criticized for not being tough enough. It required core capital of 5 percent to be held, but did not apply severe losses on holdings of Greek and other sovereign debt. The current test is expected to mark peripheral eurozone debt to market prices.
Using a 7 percent pass mark, previous stress test data, and current market prices for sovereign bonds, 48 banks would fail the test and need to raise 99 billion euros, according to Reuters Breakingviews data. Only eight banks had failed the test in July.
Greek banks would be hardest hit and National Bank of Greece, Eurobank and the other four top lenders could need over 30 billion euros under the tougher scenario.
Based on the end-2010 data, other banks that would need capital include Royal Bank of Scotland and Commerzbank.
The European Banking Authority wants banks to hold a minimum core Tier One ratio of 7 percent under a recession scenario, and those who fail will be asked to bolster their capital, two banking sources said.
The data was requested on Friday and banks have been asked to submit it by the end of yesterday, three sources said. The data is based on the end of June.
"A significant number of banks are expected to fail the stress tests," one of these sources said.
A "stress test" of 90 banks run by the EBA this summer was criticized for not being tough enough. It required core capital of 5 percent to be held, but did not apply severe losses on holdings of Greek and other sovereign debt. The current test is expected to mark peripheral eurozone debt to market prices.
Using a 7 percent pass mark, previous stress test data, and current market prices for sovereign bonds, 48 banks would fail the test and need to raise 99 billion euros, according to Reuters Breakingviews data. Only eight banks had failed the test in July.
Greek banks would be hardest hit and National Bank of Greece, Eurobank and the other four top lenders could need over 30 billion euros under the tougher scenario.
Based on the end-2010 data, other banks that would need capital include Royal Bank of Scotland and Commerzbank.
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