Seven European Union banks failed the region’s stress tests with a combined capital shortfall of €3.5 billion ($4.5 billion), according to the Committee of European Banking Supervisors, which coordinated the tests.
Five Spanish banks, one German bank and one Greek bank failed the tests, according to the committee.
“National authorities are in close contact with these banks to assess the results of the test and their implications, in particular in terms of need for recapitalization,” the committee said in a statement on its website Friday.
EU regulators scrutinized 91 of the bloc’s banks to assess whether they have enough capital to withstand a recession and sovereign-debt crisis, with a Tier 1 capital ratio of 6% as a floor. Governments are seeking to reassure investors about the health of financial institutions after the debt crisis pummeled the bonds of Greece, Spain and Portugal.
The evaluations took into account potential losses only on government bonds the banks trade, rather than those they are holding to maturity, according to CEBS. That means the tests are set to ignore the majority of banks’ holdings of sovereign debt, investors said.
In Germany, Hypo Real Estate Holding, a property lender that was taken over by the state, was the only bank to fail among the 14 that were tested, the Bundesbank and the nation’s financial regulator, BaFin, said in a joint statement. Agricultural Bank of Greece said it also failed.
The Spanish Confederation of Savings Banks did not identify the Spanish banks that failed.