Saturday, July 30, 2016

Stress tests: banks can do better – The World

Le Monde | • Updated | By

Investors and European leaders awaited the verdict with nervousness. He fell Friday, July 29, at 22 hours after the close of US markets. Unsurprisingly, Italian banks are among those that have performed poorly to new stress tests (or stress tests ) conducted by the European Banking Authority (EBA).

in particular Banca Monte dei Paschi di Siena (MPS), recording by far the worst performance. Just before the publication of the results of stress tests , MPS announced the establishment of a rescue plan which involves the sale of part of its bad loans.

in detail, the EBA unveiled batteries figures concerning 51 European banks, representing 70% of banking assets in the Old Continent. In parallel, the European Central Bank (ECB) subject to testing 56 other institutions in the euro area – but in this case, the results were not made public

In theory, the principle. of these examinations is simple: check banks’ health status and whether they would be able to absorb shocks in case of a catastrophe that would be spread over three years. Here, the scenario includes a recession of 1.2% in 2016 and 1.3% in 2017 in the European Union, soaring unemployment and the collapse of property prices. EBA measurement, including how changing the main solvency ratio (the “Common Equity Tier 1″) for each institution – this indicator measures the strength of banks, as it establishes a relationship between their own funds and the amount of loans distributed , weighted by the associated risks

Read also:. the Italian bank MPS launches a rescue plan

in the case of MPS, this ratio would melt of more than 14.5 points for fall – 2.44% in the adverse scenario. This is well below the symbolic threshold of 5.5% set in the previous stress tests in 2014. At 4.31%, the Irish Allied Irish Banks goes not the threshold. If they are over a dozen other institutions post, despite everything, fragilities.

“Shed light on the state sector

This is particularly the case of the Irish Bank of Ireland, the Austrian Raiffeisen, the Spanish Banco Popular, the Italian UniCredit or the German Deutsche Bank, which show a ratio below 8% in the crisis scenario, against 9.2% on average for all banks. Conversely, good Swedish students are all above 14%.

“If we recognize the importance of capital raising conducted to date this is not a good bill of health , says the president of the EBA, Andrea Enria, in a statement. There is still work to do. “

Read also: The” bad debts “challenge of European banks

Meanwhile, the French finance minister, Michel Sapin, welcomed the results of hexagonal banks, “now among the strongest,” he said. The BPCE group, Credit Agricole, Credit Mutuel, The Post Bank, BNP Paribas, and to a lesser extent, the General Society displayed the correct indicators.

Michel Sapin s’ welcomed the results of the french institutions, “among the most solid”

bank stress tests took major importance since the crisis. The United States have strengthened in 2008, with a target: “shed light on the state sector, before starting spring cleaning” recalls Gregory Claeys, the Brussels think-tank Bruegel. But also avoid the Japanese scenario, where, not having revealed the true state of their balance sheets after the crisis of 1990, banks have turned into “zombies” unable to properly finance the economy.

“in Europe, where households and especially businesses borrow mainly from banks, such a scenario would be dramatic,” Gerino said Daniel, president of the company Selection management Carlton

Read also:. British banks still fragile

But when the EBA is, in turn, launched in the year in 2010 and 2011, it failed to detect flaws in Irish and Greek settlements, yet on the verge of explosion … to strengthen this system and make the stress tests more credible leaders Europeans have entrusted the supervision of the largest banks in the euro area the ECB (130 in all), in addition to the action of EBA.

“Italy has too expected “

Before starting this mission, the ECB again” tested “banks in October 2014. Twenty-five had then failed. Thirteen had to raise fresh capital in stride. “This exercise has helped to restore confidence in the sector, and the ECB has become a credible supervisor” , judge Bruno Colmant, chief economist at Degroof Petercam.

But the stress tests are not infallible either. First, because their results depend on the established disaster scenario. Or it can hardly take into account all possible risks, including political. In addition, tests released Friday concern only 51 banks, 130 against those in 2014.

“No Greek or Portuguese institution n ‘ is present, while some may be a source of risk in their countries, “ regret Jezebel Couppey-Soubeyran, specialist banking in Paris-I-Panthéon-Sorbonne.

Finally, unlike 2014, the tests do not distinguish winners or losers and do not require direct recapitalization of banks whose solvency is threatened too much in the dark scenario. Supervisors will decide later what recommendations to make to each bank on the matter

Read also:. Greece is preparing to recapitalize its banks

Still, the published data July 29 confirmed that if he gets better, the European banking sector has not turned the page of the crisis, particularly in Italy. “Very fragmented, the Peninsula institutions buckling under 360 billion euros of bad loans,” recalls Nicolas Véron, a specialist in these questions at the Peterson Institute in Washington. “Unlike Ireland or Spain, who cleaned up the balance sheet of their banks after the crisis, Italy has waited too long. “


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