The European Banking Authority, which is the banking regulator for financial institutions in the European Union, announced the results of its stress test to 48 European banks representing 70% of total EU banking assets. A special focus was placed on the Italian banks which recently had problems, including in the light of budgetary disagreements between Brussels and Berlin. In addition, after three years of losses, the biggest lender in Germany – Deutsche Bank was also an object of particular interest.
The new study was expected with attention as the previous stress test was only carried out in 2016.
The new analysis was about how the capital positions of banks were developed in a basic and adverse scenario based on data from the end of 2017, for a three-year period by the end of 2020. As a result of the stress test, supervisors, banks and other market participants have gained a common analytical framework for comparing and assessing banks’ resilience to country-specific economic shocks.
The short test results are positive – all financial institutions across the EU pass the “unfavourable scenario” of the European Central Bank, albeit with different levels of shock.
Subject to rigorous surveillance, the Italian banks have been able to perform satisfactorily, report the banking regulators. Unicredit, which is the largest Italian bank, has achieved a score of 9.34 percent and UBI Banca – 7.42 percent. The lowest result among the Italian banks recorded Banco BPM – 6.67 percent.
Deutsche Bank also presented better than some predicted, registering a Common Equity Tier 1 (CET 1) ratio of 8.14 percent in the unfavourable scenario.
At the bottom are the British banks. One of the main factors in the adverse scenario was related to political uncertainty, including Brexit. The assumption was that this uncertainty, among other things, would cause an adverse shock to confidence in advanced economies at the beginning of the forecast period. Barclays ranked last with 6.37 percent in the unfavourable scenario. Another British bank – Lloyds also performed not very well with 6.8 percent.
The stress test scenario in 2018 was based on consistent and highly negative macroeconomic conditions. The 2018 scenario was to be made earlier than the one for the 2016 stress test. The reason was the earlier stress test for Greek banks than for others.
