A European Union stress test of major banks in the region showed that they could face $581.5 billion, or euro400 billion, in losses this year and next year if the economy worsens.
In a draft statement obtained by The Associated Press, the EU’s 27 finance ministers and central bankers said the 22 banks they examined were healthy enough to survive a downturn, mainly thanks to recent strong earnings and government financial support.
“Large EU banks appear sufficiently capitalized to head off a severe macroeconomic deterioration,” they plan to say.
The EU banks they examined would jointly keep their capital buffers above a key global standard of banking health, they said. Worldwide Basel II banking rules recommend a Tier 1 capital ratio of at least 4 percent. No EU bank would go beneath 6 percent, the tests showed.
The statement said “the resilience of the banking sector reflects the recent increase in earnings forecasts and, to a large extent, the important support currently provided by the public sector.”
European governments have laid out billions of euros to recapitalize troubled banks and buy up problem assets such as complex securitized investments that have slid in value over the last two years.
The EU statement said banks should continue strengthening their financial position and maintain lending to companies and other private borrowers.
It also said national supervisors should follow up with individual banks. The stress text only examined the banking system as a whole — based on just the 22 biggest banks that operate in different European countries.
It did not name the banks involved in the test or give details on what scenarios it used to show a worse economic situation. (AP)
