Banks stress test: Better, but not fit

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The large European banks were able to improve their resilience against crises in the third stress test of the banking supervision. But British, Italian, and German institutions have not performed well.

Prepared are the European banks, good for a crisis? The wanted to find out, the European banking authority (EBA) in its third stress test. She is investigating has tested to 48 large banks from 15 EU countries and Norway. Of these, 37 have come from the Euro area, they cover in the currency Union, about 70 percent of the banking market. Of these 37, the four Greek banks have been tested, but already in the spring.

What has been tested?

According to the Bank supervisor, the Stress scenario was the strictest by far. It was assumed a strong economic downturn about three years. How strong was dependent on the economic strength of each country. The Italian banks should simulate a break-in of the economic performance of 6.7 percent, the German would be a 10.1 percent – so much more so because the German economy is currently running well, and therefore, a stronger downturn clearly feel it.

In such an economic slump, unemployment would rise, many people could not pay their property loans, the stock prices would plummet. The EBA has determined that the unemployment rate rises to 9.7 percent in 2020, and the real estate prices to slump dramatically. This Stress can only endure banks, a sufficiently thick capital cushions. The Basis for the calculation of the end of 2017.

What has come out?

On average, the background banks have achieved in the year 2020, a hard core capital ratio of 10.1 per cent. The Italian banks were among them, because they still hold many non-performing loans. Of the four tested banks from Italy, Banco BPM section at its weakest, your buffer decreased to 6.67 percent.

How meaningful these Figures, however, is questionable. The Italian banks also hold more than 300 billion euros of government bonds, which have not been taken into account during the Test. Due to the current budget dispute between Italy and the EU, the bonds could lose significant value – this would then also reduce the resilience of the Italian Institute.

The British Bank Barclays was caught in the stress test so hard, like no other financial institution in the EU. The hard core capital ratio of the institution has halved in the assumed crisis scenario, by 2020, to only to 6.37 percent. Little better it delivery for the British Bank Lloyds. The also tested institutions, HSBC and Royal Bank of Scotland (RBS) are prepared better for a serious crisis.

What about the German banks?

It is also a Surprise: Of the eight institutions from Germany, six fared worse than the European average. The Bank is also showed in the described Stress scenario for 2020, a hard core capital ratio of 9.9%, the Deutsche Bank is only 8.1 percent. The cooperative Central institution, DZ Bank has 8,97 percent, Bayerische Landesbank 9,44%, and the Landesbank Hessen-Thüringen Girozentrale (Helaba) is 9.96 percent, and the NordLB with 7.07 per cent. Only the Landesbank Baden-Württemberg and NRW.The Bank performed better than the average.

The NordLB landed in Germany in the last position came as a surprise, however, is less: they had done their Kapitalnöte already public and is searching for an Investor. In view of their poor test results, the question of whether the Helaba would really be well advised to take on a part of the NordLB. This Plan of a Super-Landesbank is currently being discussed in the savings Bank stock.

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Learned nothing from the Lehman Brothers collapse?

Is a Bank?

The EBA has omitted, as two years ago, the fact that a uniform capital ratio for all the tested money houses. Therefore, it is not “by Faller” or “rather”. But you can read on the basis of the results, which Bank would have in the event of a crisis, too little capital. In the Test, numerous data are collected, integrated into the work of the banking supervision. It is institutions, their capital base as a thin, pad make is to get more fresh money.

How is it that the German banks stand out so well?

This is due to the fact that the Stress scenario for the German banks was significantly harder than in other countries and a stronger economic slump simulated (see above). In addition, the institutes are due to the strong competition in Germany is less profitable than many foreign banks.

What about the other banks?

In addition to the 48 system-relevant large banks 54 other institutions were tested, which have a “significant” size. This task was taken on by the European Central Bank (ECB). She has created a “virtually identical” criteria, such as the stress test of big banks. However, they will not publish the results.

If there is no Faller, what is the point of such a stress test?

The Test gives the supervisors and the Public insight into data, you might not see otherwise. This helps in the assessment, but also helps the banks to identify weak points in your balance sheet and to fix this.