The results of the “stress tests” or “bank stress tests” were highly anticipated by the European banking sector. Made Friday night, they were passed with flying colors by French banks. But what are they exactly? Francetv info provided an update on three questions.
What are these tests?
Conduits under the aegis of the European Banking Authority ( ABE) on EU banks since the financial crisis of 2008 which required the bank bailout with public funds, i ls designed to test the strength of bank balance sheets during economic or financial shock, says Le Figaro . Bank balance sheets are subject to various scenarios to simulate its response capabilities, says Cross . A central scenario is “based on key existing macroeconomic forecasts (unemployment, growth …)” and “we imagine a series of economic and financial shocks more or less serious” continues Cross . The banks are then evaluated on “degraded scenarios.” It can be a “strong slowdown in growth or even recession, rising unemployment and defaulted loans, a fall in stock markets …” then sounds out how the bank would react .
This time the tests were based on scenarios including a GDP fall of the European Union of 7.1% compared to the baseline scenario over the next three years and down 20 % of interest income. For the first time, these stress tests take into account the consequences of risky behavior of banks such as fines and financial implications of amicable settlements on equity during the period used for the tests.
What are the results?
the EBA conducted the bank stress tests on 51 main banking groups in the EU. The Italian bank Monte dei Paschi, the Austrian Raiffeisen, the Spanish Banco Popular, as well as two of the main Irish banks have obtained the worst results at the end of the “stress tests”. The two largest German banks, Deutsche Bank and Commerzbank, are also among the 12 banks that have proven the most fragile in the tests, with their British rival Barclays. The results were announced after Banca Monte dei Paschi di Siena, the oldest bank in the world, announced Friday a last-ditch rescue plan that includes a capital increase of five billion euros and the sale of bad loans to 9.2 billion euros.
Eight years after the collapse of Lehman Brothers which led to a serious crisis in the global banking sector, the EBA emphasized that there remained work to do to revive the credit within the European Union, where many banks are still hampered by billions of euros of bad loans. “Although a number of individual banks have clearly had bad results, the overall conclusion of the European Banking Authority – that European banks would resist property to another crisis – is encouraging” said Anthony Kruizinga PwC. The EBA said that efforts should still be made to the European banking system has a better foundation in terms of capitalization.
And the French institutions?
Six banking groups, representing over 90% of the assets of the french banking system have been involved in this exercise. And these banks performed well , said on Friday the Bank of France (BoF) after the publication of their results. “They were able, in recent years strongly strengthen their capital to meet regulatory requirements and demonstrate that they now have a high level of solvency” , explained BoF Governor François Villeroy de Galhau who is also president of the control Authority and resolution (APCR) French.
the French banking Federation (FBF) said in a statement that these tests yet more severe than in 2014, show that French banks are among those who resisted best an adverse scenario. “After the positive results of November 2014, the results of stress tests in 2016 confirmed once again the strength of French banks. The relevance of our universal banking model provides good risk diversification and income, and good funding economy “, noted Marie-Anne Barbat-Layani, executive director of the FBF.
the finance minister Michel Sapin said in a statement that ” banks French were strengthened in response to increased requirements after the crisis, and are now among the strongest. They are thus able to effectively contribute to the financing of the economy “.
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