Tags: ECB | eurozone | economy | banking

Banks Failing Stress Tests Will Have 9 Months to Recover: ECB

Tuesday, 29 Apr 2014 11:41 AM

European banks that fail upcoming tests on their financial resilience will have up to nine months to strengthen their balance sheets, the European Central Bank said Tuesday.

"Banks will be expected to cover capital shortfalls within six to nine months after the disclosure of the results of the comprehensive assessment," the Frankfurt-based institution said in a statement.

As part of the banking union being set up in Europe, the ECB will be in charge of supervising some 130 banks as of November.

Prior to that, the financial solidity of these banks will be put to the test, by the ECB itself and via separate stress tests run by the London-based European Banking Authority.

These tests are aimed at "identifying remaining vulnerabilities in the EU banking sector," the EBA said Tuesday.

In particular, they will try to assess how banks' balance sheets would react to an "adverse scenario" of severe recession and high unemployment.

Banks whose financial stability would be called into question by this scenario will have nine months to fix things, the ECB said.

And banks failing to pass the milder test will need to boost their capital within six months of the publication of the tests' results, it added.

"In anticipation of any shortfalls, banks should start to consider what private sources of capital could be raised as a result of this exercise and plan accordingly," vice president Vitor Constancio said in the ECB statement.

Adequate measures can include issuing shares, retaining earnings or reducing bonus payments, he added.

In the run-up to the start of the supervision, many European banks have already taken steps to bolster their finances.

Deutsche Bank said late Monday it would raise 5 billion euros ($6.9 billion) by the end of 2015.

© AFP 2017

 
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European banks that fail upcoming tests on their financial resilience will have up to nine months to strengthen their balance sheets, the European Central Bank said Tuesday.
ECB, eurozone, economy, banking
289
2014-41-29
Tuesday, 29 Apr 2014 11:41 AM
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