Bank stress-tests: Can we trust the tyre-kicking?

Europe's banks have undergone another round of health tests, with worrying results for Italy.

Stress testing banks to see if they might require a taxpayer-funded bail-out is becoming "one of Europe's newer traditions", says The Economist. The latest exercise involved 130 of the region's largest institutions; the results, released on Sunday, found that 25 banks had a capital shortfall as of the end of 2013.

Half of those had since raised enough money to plug the gap, leaving 13 firms needing a further €9.5bn. Most of these require small amounts. Only three banks one each in Italy, Portugal and Greece need to raise more than €1bn.

Of course, given that the trend in past tests has been for banks to be declared in good health only to "topple over soon after", markets may treat results with caution. "But this time is different, the organisers say."

The tests involved a detailed examination of the quality of the loans held by most of the banks, conducted by the European Central Bank, which is "now regarded as the most credible institution in Europe". This may encourage investors to believe that all is finally well in the banking sector.

Still, there is one clear loser from the results, says Capital Economics:Italy, where four of the banks that face shortfalls are based. All may struggle to raise capital privately, especially Monte dei Paschi di Siena, which has already tapped long-suffering shareholders for €5bn this year.

"This raises a worrying comparison with Spain's poor performance in the 2011 stress tests, which ultimately led to an EU-funded bank bail-out the following year."

Recommended

How the Covid-19 vaccine crisis is putting the EU in danger
EU Economy

How the Covid-19 vaccine crisis is putting the EU in danger

The botched coronavirus vaccine campaign will cause long-term harm to the EU's economy, says Matthew Lynn.
4 Apr 2021
How the vaccine wars will harm us all
Global Economy

How the vaccine wars will harm us all

Grabbing and hoarding vaccine supplies, or even manufacturing one’s own, might seem to make sense for a state in an emergency. But the damage done to …
27 Mar 2021
The European Central Bank fumbles its way towards yield curve control
EU Economy

The European Central Bank fumbles its way towards yield curve control

The EU’s economic recovery is faltering, but its bond yields keep rising. That makes things tricky for the European Central Bank, says John Stepek. He…
12 Mar 2021
Vexing vaccine delays hit drug firms
Biotech stocks

Vexing vaccine delays hit drug firms

AstraZeneca and Pfizer are being attacked by the EU over what it claims are delays in delivering the Covid vaccine.
28 Jan 2021

Most Popular

“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?
Bitcoin

“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?

Dogecoin – a cryptocurrency created as a joke – has risen by more than 9,000% this year alone. Saloni Sardana looks at how something that began as an …
19 Apr 2021
Lab-grown meat: how “moo’s law” will drive innovation
Soft commodities

Lab-grown meat: how “moo’s law” will drive innovation

Jim Mellon and Anthony Chow, co-founders of Aim-listed Agronomics, explain why they believe that “cellular agriculture” will benefit from massive long…
16 Apr 2021
The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021