BRUSSELS (MNI) – Seven European banks failed tests to prove they
could weather a mild recession or bout of severe market turbulence and
as a result need to raise more capital, the Committee of European
Banking Supervisors (CEBS), said on Friday.

Five Spanish banks, one German bank and one Greek bank didn’t meet
the requirements of the tests, CEBS said, in an exercise designed
to shore up investor confidence in the EU banking sector, by proving
that most of the regions banks had enough capital to withstand future
shocks.

In total, 91 banks were tested, constituting 65% of the EU’s total
banking assets.

Spain’s Espiga, Diada, Banca Civica, Cajasur and Unnim failed the
tests, along with Germany’s Hypo Real Estate and Greece’s ATEbank.

Those banks should “take the necessary steps to reinforce their
capital positions through private-sector means and by resorting, if
necessary, to facilities set up by Member State governments, in full
compliance with EU state-aid rules,” the Committee of European Banking
Supervisors, the European Central Bank and the European Commission said
in a joint statement.

In a joint statement, the CEBS, the ECB and the European
Commission, said they welcomed the level of disclosure that EU banks had
agreed to provide.

“Such disclosures ensure transparency regarding conditions in the
EU banking sector,” the statement said.

“The adverse scenarios used in the stress test are designed as
‘what-if’ scenarios reflecting severe assumptions which are therefore
not very likely to materialise in practice,” the statement said.

“Accordingly, the results of the test confirm the overall
resilience of the EU banking system to negative macroeconomic and
financial shocks, and are an important step forward in restoring market
confidence,” it concluded.

Europe’s policymakers hope that the publication of these results
will have the same effect as similar ones carried out in the US last
year, which prompted 10 banks to raise additional capital and were
widely credited with giving the sector a much-needed boost.

But investors may want more evidence that EU banks have been tested
stringently enough.

–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com

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