Bank stress test results released

vivatifosi

Per BBC, all UK banks passed, Lloyds narrowly. Failed banks include institutions from Greece, Cyprus and Italy:

http://www.bbc.co.uk/news/business-29777589

24 in total failed. 12 have already taken steps to remedy. All of the remaining 12 are Eurozone based.

ETA, per Reuters:

The EBA said three Greek banks, three Cypriots, two from both Belgium and Slovenia, and one each from France, Germany, Austria, Ireland and Portugal had also fallen short as of the end of last year.

Biggest problem is at Monti di Paschi (Italy)

http://uk.reuters.com/article/2014/10/26/uk-eu-banks-idUKKBN0IF0BA20141026

Thrugelmir

879 billion Euros of non performing loans. Shows how fragile the European economy is. Still much to be worked through.

vivatifosi

Update:

BBC has updated article to name banks (see link above):

Still troubled: The 14 banks that still need to raise capital
Austria: Oesterreichische Volksbanken
Belgium: AXA Bank Europe, Dexia
Cyprus: Hellenic Bank Public Company
Greece: Eurobank Ergasias, National Bank of Greece
Republic of Ireland: Permanent TSB
Italy: Banca Carige, Monte dei Paschi, Banca Popolare di Milano, Banca Popolare di Vicenza
Portugal: Banco Comercial Portugues
Slovenia: Nova Kreditna Banka Maribor, Nova Ljubljanska Banka

TickersPlaysPop

I'd like to see the world bank perform a similar exercise in China including the shadow banks.

To me it seemed like the debt bubble in 2008 transferred to China where they have been creating a debt mountain to support the building frenzy. This crazy capitalist immoral banking system where money is created out of thin air based on the banks assessment that the borrower can pay back the money and a tiny deposit, combined with a communist dictatorship and secrecy is a recipe for disaster.

When China pops what will happen?... Or are they also too big to fail?

Thrugelmir

UK banks have to measure up to far more strenuous tests set by the BOE. Results of which are due in December. Also talk of banks having to hold £1 of capital for every £20 lent. As opposed to current £33. This would require banks to hold another somewhere in the region of another £46 billion of capital.

This story has a long way to run yet.

Graham_Devon

Do any of the stress tests analyse what would happen to all the other banks if one bank hit problems?

We now know there are 24 banks failing to meet the tests, and presumably quite a few like Lloyds who just scraped by.

Therefore, surely if one or two of those banks failing to meet the tests actually hit problems, the rest would be effected too? Or can they isolate one bank failing?

The report seems to focus on individuals banks, but not the banking sector as a whole which, as I understand it, is very much linked? If you have bad apples in the cart, the rest can easily be effected?

N1AK

Graham_Devon wrote: »

Do any of the stress tests analyse what would happen to all the other banks if one bank hit problems?

The goal of the tests is to see how/if the banks could handle another financial crash so I would assume that the conditions are severe enough to account for that. However if you feel like reading up on it and enlightening us as to the detail I'm sure it would be appreciated.

There's nothing overly concerning about the annoucement, though sadly it is a little lacking in points of comparison. A few banks failing isn't in itself a reason to be concerned, but if we are in a weaker position than last crash or if the failures would require extensive state intervention isn't explained; though I doubt either is the case.

Graham_Devon

N1AK wrote: »

The goal of the tests is to see how/if the banks could handle another financial crash so I would assume that the conditions are severe enough to account for that. However if you feel like reading up on it and enlightening us as to the detail I'm sure it would be appreciated.

There's nothing overly concerning about the annoucement, though sadly it is a little lacking in points of comparison. A few banks failing isn't in itself a reason to be concerned, but if we are in a weaker position than last crash or if the failures would require extensive state intervention isn't explained; though I doubt either is the case.

Was just asking a question.

One thing that has been bought up elsewhere is that tax deferment monies can be used as 1st tier capital. It's starting to unravel and Bloomberg seem to be the ones unraveling it all.

Generali

N1AK wrote: »

The goal of the tests is to see how/if the banks could handle another financial crash so I would assume that the conditions are severe enough to account for that. However if you feel like reading up on it and enlightening us as to the detail I'm sure it would be appreciated.

There's nothing overly concerning about the annoucement, though sadly it is a little lacking in points of comparison. A few banks failing isn't in itself a reason to be concerned, but if we are in a weaker position than last crash or if the failures would require extensive state intervention isn't explained; though I doubt either is the case.

I wrote a stress test once for a hedge fund and instead of seeing what would happen in a given circumstance I decided to see what would be required to make it fail.

Any company will fail given the right set of circumstances and I think that it's useful to understand what those would be, especially in the case of banks (e.g. would Lloyds fail if house prices fell 40% and repos doubled or do house prices only need to fall 10% in that case?). I suspect that the stress tests are more about selling how strong banks are as a group are than anything else.

Lest we forget, the EU stress tests omitted by design any sovereign default last time around. At that point Greek Government debt was yielding 30% and the Cypriot banks we about to shut their doors to savers withdrawing money. All the Greek and Cypriot banks passed the stress test IIRC.

princeofpounds

The european banks are in much better shape than they were.

The risk has been transferred to the sovereign balance sheets mostly.

Thrugelmir

Graham_Devon wrote: »

Therefore, surely if one or two of those banks failing to meet the tests actually hit problems, the rest would be effected too? Or can they isolate one bank failing?

That's the whole point of progressively tightening the screw. Banks are being forced to be one step ahead of the regulators. Over time the resultant shock waves of a single bank failing are reduced. That's not to say that a bank that fails won't cause shockwaves at a local level, i.e. Northern Rock.

BOE will use capital requirements to help control house prices over the medium term.