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Nine European banks fail stress tests
Failing entities advised to move to strengthen their financial cushions, as eurozone fights growing debt crisis.
Last Modified: 15 Jul 2011 19:49
Stress tests were meant to make banks take action to stay safe from another Greek-like financial crisis [Reuters]

Nine of 91 European banks have failed in stress tests used to project how they would fare in another recession.

Sixteen others would barely stay above water in another crisis, according to results released on Friday.

The failing banks should "promptly" move to strengthen their financial cushions, the European Banking Authority (EBA) said as it released the results.

Spain, where many local savings banks have been closely watched by analysts, fared worst, with five banks ruled unfit to sustain the regulator's stress scenario.

The banks were Catalunya Caixa, Caja de Ahorros de Mediterraneo, Banco Pastor, Unnim and Grupo Caja.

Two Greek banks, EFG Eurobank and ATEBank, also failed, as did Austria's Oesterreichische Volksbank AG.

Al Jazeera's Nick Spicer, reporting from Frankfurt on Friday, said that bank stress tests are done often, but that "this is different because it sort of seeks out the public good ... it looks at systemic risks affecting the system as a whole".

Greek crisis spreading

The tests are a crucial element in Europe's fight against the growing debt crises, with results released the same day that Italy passed $67bn in austerity measures.

"For countries such as Italy ... the stress tests will allow the government there to say the system is generally working well" but that they need to reinforce it with austerity measures, our correspondent said.

As eurozone leaders prepare to tackle Greece's debt woes, banks may soon face a tougher real-life test.

With most market watchers expecting Greece, and possibly the other bailout victims Ireland and Portugal, to eventually fail to pay their massive debt piles, concerns over what such a default would do to banks around the continent has triggered panic on financial markets in recent weeks.

Officials hope that the stress tests identify weak banks and make them strengthen their finances.
The test scenarios did not include a default by a European country, but each bank had to report its exposure to sovereign debt, allowing economists to run separate analyses.

Specifically, the scenarios, tested by national banking regulators, simulated what would happen to bank finances during a recession where growth drops more than 4 per centage points below EU forecasts.

For the 17-country eurozone, that would be a drop of half a per cent this year and 0.2 per cent next year.

Eurozone meeting

The news came as the EU president announced that leaders of the eurozone countries will hold a special summit next week in an attempt to forge a deal on a second bailout for Greece.

Herman Van Rompuy called the meeting after disagreement over the contribution of banks and other private investors to a second rescue package rocked markets for much of the week.

The meeting, Al Jazeera's Spicer said, is part of a larger push to "save the euro, look out for the public good, and that's what the stress tests were really all about - building up confidence, largely in the public".

Greece needs an extra $162.68bn to keep it afloat until mid-2014, according to the European Commission, on top of a massive bailout it was granted in May.

Leaders are also expected cut the interest rates and extend loan maturities on existing bailout loans, which could help make the debt of struggling countries more sustainable.

Source:
Al Jazeera and agencies
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