Eight banks fail EU stress test with 16 in danger zone

BBC News, 15 July 2011

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Eight out of 90 European banks have failed stress tests designed to ensure they could withstand another financial crisis.

Banks both inside and outside
the eurozone were tested.

The European Banking Authority (EBA), which carried out the healtcheck, said another 16 banks were in the danger zone.

The EBA called on national financial regulators to ensure that capital shortfalls would be quickly resolved.

Five Spanish banks failed, as well as two in Austria and one in Greece.

The failed banks will be named shortly.

The EBA added that another 16 banks only just passed the tests. All the banks will face pressure to strengthen their finances.

The news came just as Italy's parliament approved a 70bn euro austerity package. The country's central bank said that all Italian banks had passed the tests with "an ample margin".

The tests are a key element in fighting Europe's debt crisis to identify weak banks and ensure they are made robust enough to survive a possible default on government bonds heavily indebted countries such as Greece.

There have been concerns, including from the ratings agency Standard & Poors, that the tests were not strict enough. However, the EBA said they were more stringent than those it carried out last year.

In 2010, both Irish banks tested, Bank of Ireland and Allied Irish Bank, were given a clean bill of health. But just months later, AIB needed a government bail-out.

On Wednesday, German bank Helaba said it expected to pull out of the stress tests to avoid public failure.

It said it would have passed the test if regulators counted a debt-equity hybrid, called "silent participation", as a capital reserve, but the EBA, having initially said it would accept this, then changed its mind.

The bank said it was not allowing the EBA to publish its data and therefore expected to be excluded from the tests.