Out of 130 key banks in Europe, 25 failed the European Central Bank’s stress tests, with a 25 billion euro or $31.7 billion shortfall, as reported by CNBC. Worse than that, all the banks were shown not to have been careful enough about toxic assets, with a plethora of non-performing loans. However, 12 of the 25 banks identified as having failed have covered their capital shortfall. The 13 remaining banks have been given a deadline to submit a plan to the ECB on how they will remedy the problem. They will then be given nine months to clean up their acts, or the ECB will step in with regulations.
Italian banks are suffering the most, with 9 of their banks on the blacklist. Greece, Slovenia, Cyprus, Belgium, France, Austria, Ireland, Portugal and Germany also have banks that didn’t pass muster.
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In the past, such stress tests were regarded as having been ineffective, so the ECB has raised its standards. ECB Vice President, Vitor Constancio, said, “We were involved in the exercise of almost 5, 000 experts from private firms…so I think the exercise can be a very credible one.”
