Saturday 10 December 2016

EU to publish stress tests on banks next week

Independent.ie reporters

Published 08/07/2011 | 15:37

The EU’s banking watchdog said today it would publish the results of a continent-wide round of bank stress tests next week including new ones on Bank of Ireland, Allied Irish Banks and Irish Life & Permanent.

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The widely anticipated results will cover 91 banks probing if they have enough capital to withstand a hypothetical economic shock.

A previous round of tests, published last July, were discredited largely because AIB, having passed it, was two months later found to require €8bn more to keep it afloat.

The EU says the stress tests are necessary to restore confidence in the banking sector, which has been rocked most recently by Greece's financial woes.

To pass the new round, EU banks will need to show that they can maintain cash reserves worth at least 5pc of risky assets given a worst-case scenario outlined by the European Banking Authority (EBA).

Irish banks were put through a separate stricter test earlier this year as part of the EU-IMF bailout programme, which uncovered a €24bn capital hole in March.

Although the Government is participating in the EU-wide test, it will stick to its previous results, which have been agreed with the country's international creditors.

"The Programme of Assistance required capital to be injected to meet the PCAR stress tests by end July. The Government has committed to this injection," a government spokesperson said.

EU finance ministers have agreed to outline back-up plans - including further public money - should the tests reveal cash shortages in any of the banks.

Spanish and German lenders, particularly the regional savings banks, have been boosting their capital levels in advance of the tests.

The EBA announced today that it was giving banks until the end of 2012 - a full year longer than finance ministers had originally suggested - to raise their capital levels based on the test results.

The European Banking Federation, which represents banking associations across Europe, including Ireland, said the tests would only fuel uncertainty and speculation in the market.

They say the tests are “unrealistic” and “extreme” and may hamper lenders’ ability to raise funding on the market, forcing them to turn to governments for support.

EU finance ministers reunite next Monday and Tuesday, when they will hold talks on the tests.

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