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7 European banks fail stress tests

07-24-2010 08:48 BJT

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The European Union says its economy is sound and healthy even after seven banks failed a stress test.

The test aimed to measure their financial health in case the continent's sovereign debt crisis takes a turn for the worse.

The seven banks which failed are one from Greece, five from Spain and one from Germany.

The search for weak spots in Europe's banking system started with a pool of 91 banks, representing nearly two thirds of the bloc's banking sector.

Seven banks failed. In a joint statement, the Committee of European Banking Supervisors and the European Commission said that any bank whose Tier 1 capital ratio fell below 6 percent would be regarded as failing the tests.

Giovanni Carosio, Chiarman of CEBS, said, "Now in terms of the capital ratios of individual banks after the application of this stress test, we have seven banks that would now, if the stress materialised, would be under the six-percent threshold that we used as a benchmark. And the capital shortfall to reach the six-percent threshold would amount to three-billion (b) and a half."

The banks were subjected to close scrutiny of their balance sheets, to establish if they have enough capital to withstand a new economic downturn.

The test shows the banks may suffer an overall capital shortfall of 3.5 billion euros in the worst possible scenario. That means, they would see their Tier 1 capital ratios fall below six percent.

The banking regulators also say the seven banks should take measures to make sure they have enough capital and apply for government aid if needed, but they should meet EU regulatory standards.

Overall, the banking regulators say the test proves the region's economy is resilient despite the recession and the debt crisis facing a number of governments.

 

Editor:Zhang Pengfei |Source: CNTV.CN

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