Stress tests for European banks

July 24, 2010 by timbercommunity

91 banks in European Union have undergone a stress test how they manage the financial crisis. Seven banks failed the European stress test. The exercise includes a sample of 91 European banks, representing 65% of the European market in terms of total assets, in coordination with 20 national supervisory authorities. The stresstest has been conducted over a 2 years horizon, until the end of 2011.

 
Background of the stress test
CEBS (Committee of European Banking Supervisors) was mandated a second EU-wide stress testing exercise for the EU banking system. One of the objectives is to asses the ability of banks in the exercise to absorb possible shocks on credit and market risks, including sovereign risks. The CEBS stress test consists of a base scenario and a stress scenario. The test shows if the banks have enough funds, defined as a Tier 1 capital ratio of at least 6 percent, to withstand a recession and sovereign debt crisis. The test test examines the banks 'resilience in a hypothetical scenario that spans 2010-2011, which implies weaker economic growth, higher interest rates, falling stock markets and heavy losses on banks' portfolios of European government securities.

There were seven European banks that failed the European stress tests according to a press release from the European Banking Supervision Committee, CEBS. The result show that these banks would in the scenarios see their Tier 1 capital fall fall below 6%. Among them 5 spanish banks, one german and one bank from Greece.

The 7 banks that failed:
The seven that did not were either already failed institutions or the weaker banks in Spain and Greece. In Spain, the savings banks, as expected, had difficult to get a passing grade in stress tests. Cajasur, Espiga, Banca Civic, nursed and Unmin did not pass stress tests.
Several Spanish savings banks that have participated in mergers and received money from Spain’s bank rescue fund failed stress tests and they have also been involved in the spanish housing market.
Of the Greek banks, only the Agricultural Bank of Greece failed the stress test, while in Germany was only Hypo Real Estate.

Some critics are giving the entire process a failing grade. The stress test was done to prove to the public that the European banks are in good shape and US managed to significantly improve confidence in the banks with a similar procedur more than one year ago.

The stress test is too soft and the problem, critics say, is that the one-size-fits-all scenarios could fail to identify the potential for some systemic risks. But in extreme scenarios, the market require a higher level of capital, which requires that banks have good capital contingency even unlikely scenarios.

The Committee of European Banking Supervisors (CEBS) warns that there is no data reference real estate prices that create a homogeneous model. The result is that enormous differences according Spanish magazine El Pais. The Magazine writes in a worst case scenario the Bank of Spain has provided crash prices 35% this year and 30% in 2011 while the Bank of France is planning a lower price drop of  offices with 4.5% in 2010 and the same amount in 2011. Spain provides a fall in house prices of 3.8% in 2010 and 5.2% in 2011 while Austria is taken to its assumptions a rise price of offices and apartments from 2% in 2010 and 2.7% in 2011 . Obviously, the impact in the calculations will is enormous.

What would happen for instance if a country get problem for instance Greece?
Country budget shortfalls is not shown in the tests and Financial Times wrote 23rd of July:
"The regulators assumed that no European sovereign would default, which is either brave or foolhardy in light of the eurozone debt crisis. The most extreme assumption was a 23.1 per cent haircut on Greek debt. If Athens defaults, it will cause more damage than that."

There are also other countries outside European Union that have serious banking problem. Over 40 billion euro in 28167 claims made against the icelandic bank Kaupthing Bank according to a Wikileaks document dated 3 March 2010. Held with Kaupthing by a vast number of investors and asset hiders, including Goldman Sachs, Deutsche Bank, Credit Suisse, Morgan Stanly, Exista, Barclays, Commerzbank AG, etc. 

The Finance Minister of Sweden Anders Borg commented the stresstest that it is too early for Swedish banks to suffer from hubris, and highlighting a warning for the Baltic-region where Swedish banks have a large exposure. The swedish finance inspection believes that the major Swedish banks have enough capital to cope with even more extreme pressures than assumed in this stress test. The four major Swedish banks - Nordea, SEB, Handelsbanken and Swedbank Swedish - handled the stress test by a comfortable margin.

Some experts question the purpose of the stress test according to German newspaper der Spiegel. "The CEBS stress test is not particularly meaningful," says a senior risk manager at a major German bank. He argues that the test is performed on a "one size fits all" basis for all banks, even though there are sometimes drastic differences among their business models. Effective bank supervision, says the risk manager, would require more differentiated and significantly more stringent tests.


 
List of banks
covered by the 2010 EU-wide stress test exercise
 
Austria
ERSTE GROUP BANK AG
RAIFFEISEN ZENTRALBANK OESTERRREICH AG (RZB)

Belgium
KBC BANK NV

Cyprus
DEXIA
MARFIN POPULAR BANK PUBLIC CO LTD
BANK OF CYPRUS PUBLIC CO LTD

Denmark
DANSKE BANK
JYSKE BANK
SYDBANK

Finland
OP-POHJOLA GROUP

France
BNP PARIBAS
CREDIT AGRICOLE GROUP
BPCE GROUP
SOCIETE GENERALE

Germany
DEUTSCHE BANK AG
COMMERZBANK AG
HYPO REAL ESTATE HOLDING AG
LANDESBANK BADEN-WÜRTTEMBERG
BAYERISCHE LANDESBANK
DZ BANK AG DT. ZENTRAL-GENOSSENSCHAFTSBANK
NORDDEUTSCHE LANDESBANK -GZ-
DEUTSCHE POSTBANK AG
WESTLB AG
HSH NORDBANK AG
LANDESBANK HESSEN-THÜRINGEN GZ
LANDESBANK BERLIN AG
DEKABANK DEUTSCHE GIROZENTRALE
WGZ BANK AG WESTDT. GENO. ZENTRALBK

Greece
NATIONAL BANK OF GREECE
EFG EUROBANK ERGASIAS S.A.
ALPHA BANK
PIRAEUS BANK GROUP
AGRICULTURAL BANK OF GREECE S.A. (ATEbank)
TT HELLENIC POSTBANK S.A.
OTP BANK NYRT.

Hungary
FHB JELZÁLOGBANK NYILVÁNOSAN MŰKÖDŐ RT

Ireland
BANK OF IRELAND
ALLIED IRISH BANKS PLC

Italy
UNICREDIT
INTESA SANPAOLO
MONTE DEI PASCHI DI SIENA
BANCO POPOLARE - S.C.
UNIONE DI BANCHE ITALIANE SCPA (UBI BANCA)

Luxembourg
BANQUE ET CAISSE D'EPARGNE DE L'ETAT
BANQUE RAIFFEISEN

Malta
BANK OF VALLETTA (BOV)

Netherlands
ING Bank
RABOBANK GROUP
ABN/ FORTIS BANK NEDERLAND (HOLDING) N.V
SNS BANK

Poland
POWSZECHNA KASA OSZCZĘDNOŚCI BANK POLSKI S.A. (PKO BANK POLSKI)

Portugal
CAIXA GERAL DE DEPÓSITOS
BANCO COMERCIAL PORTUGUÊS BANCO COMERCIAL PORTUGUÊS S.A. (BCP OR MILLENNIUM BCP)
ESPÍRITO SANTO FINANCIAL GROUP S.A. (ESFG)
BANCO BPI

Slovenia
NOVA LJUBLJANSKA BANKA (NLB)

Spain
GRUPO SANTANDER
GRUPO BBVA

JUPITER:
CAJA DE AHORROS Y MONTE DE PIEDAD DE MADRID (CAJA MADRID); CAJA DE AHORROS DE VALENCIA, CASTELLÓN Y ALICANTE (BANCAJA); CAIXA DÉSTALVIS LAIETANA; CAJA INSULAR DE AHORROS DE CANARIAS; CAJA DE AHORROS Y MONTE DE PIEDAD DE AVILA; CAJA DE AHORROS Y MONTE DE PIEDAD DE SEGOVIA; CAJA DE AHORROS DE LA RIOJA.

CAIXA:
CAJA DE AHORROS Y PENSIONES DE BARCELONA (LA CAIXA); CAIXA DÉSTALVIS DE GIRONA.

BASE:
CAJA DE AHORROS DEL MEDITERRÁNEO (CAM); CAJA DE AHORROS DE ASTURIAS; CAJA DE AHORROS DE SANTANDER Y CANTABRIA; CAJA DE AHORROS Y MONTE DE PIEDAD DE EXTREMADURA.

BANCO POPULAR ESPAÑOL, S.A.
BANCO DE SABADELL, S.A.

DIADA:
CAIXA DÉSTALVIS DE CATALUNYA; CAIXA DÉSTALVIS DE TARRAGONA: CAIXA DÉSTALVIS DE MANRESA.

BREOGAN:
CAJA DE AHORROS DE GALICIA; CAIXA DE AFORROS DE VIGO, OURENSE E PONTEVEDRA (CAIXANOVA).

MARE NOSTRUM:
CAJA DE AHORROS DE MURCIA; CAIXA DÉSTALVIS DEL PENEDES; CAJA DE AHORROS Y MONTE DE PIEDAD DE LAS BALEARES (SA NOSTRA); CAJA GENERAL DE AHORROS DE GRANADA.
BANKINTER, S.A.

ESPIGA:
CAJA DE AHORROS DE SALAMANCA Y SORIA (CAJA DUERO); CAJA DE ESPAÑA DE INVERSIONES CAJA DE AHORROS Y MONTE DE PIEDAD (CAJA ESPAÑA).

BANCA CIVICA:
CAJA DE AHORROS Y M.P. DE NAVARRA, CAJA DE AHORROS MUNICIPAL DE BURGOS Y CAJA GENERAL DE AHORROS DE CANARIAS.
CAJA DE AHORROS Y MONTE DE PIEDAD DE ZARAGOZA, ARAGON Y RIOJA (IBERCAJA).
M.P. Y C.A. DE RONDA, CADIZ, ALMERIA, MALAGA, ANTEQUERA Y JAEN (UNICAJA)
BANCO PASTOR, S.A.

CAJA SOL:
MONTE DE PIEDAD Y CAJA DE AHORROS SAN FERNANDO DE

HUELVA, JEREZ Y SEVILLA (CAJA SOL); CAJA DE AHORRO PROVINCIAL DE GUADALAJARA.
BILBAO BIZKAIA KUTXA,AURREZKI KUTXA ETA BAHITETXEA

UNNIM:
CAIXA DÉSTALVIS DE SABADELL; CAIXA DÉSTALVIS DE TERRASSA; CAIXA DÉSTALVIS COMARCAL DE MANLLEU.
CAJA DE AHORROS Y MONTE DE PIEDAD DE GIPUZKOA Y SAN SEBASTIAN (KUTXA).

CAJA3:
CAJA DE AHORROS Y MONTE DE PIEDAD DEL CÍRCULO CATÓLICO DE OBREOS DE BURGOS (CAJA CÍRCULO); MONTE DE PIEDAD Y CAJA GENERAL DE AHORROS DE BADAJOZ; CAJA DE AHORROS DE LA INMACULADA DE ARAGÓN.
CAJA DE AHORROS Y MONTE DE PIEDAD DE CORDOBA (CAJASUR).

BANCA MARCH, S.A.
BANCO GUIPUZCOANO, S.A.
CAJA DE AHORROS DE VITORIA Y ALAVA (CAJA VITAL KUTXA).
CAJA DE AHORROS Y MONTE DE PIEDAD DE ONTINYENT.
COLONYA - CAIXA D'ESTALVIS DE POLLENSA.

Sweden
NORDEA BANK
SKANDINAVISKA ENSKILDA BANKEN AB (SEB)
SVENSKA HANDELSBANKEN
SWEDBANK

UK
ROYAL BANK OF SCOTLAND (RBS)
HSBC HOLDINGS PLC
BARCLAYS
LLOYDS BANKING GROUP