A London-based watchdog says nearly one in 11 of Europe’s banks it tested would not be able to withstand another financial crisis.
The European Banking Authority found that eight out of 90 banks failed its “stress test”, which made lenders reveal details of their finances and profit forecasts.
Banks were deemed to have failed if they slid below a 5 percent core capital pass mark in the face of a theoretical slide in stock, bond and property prices during a two-year recession.
Another 16 banks only scraped through the test, passing the 5 percent mark by less than one percentage point.
Spain came off worst, with five banks deemed to be unable to cope with the consequences of a prolonged recession.
Two banks in Greece and one in Austria also failed the test. The German bank Helaba withdrew this week. Four British institutions passed, as expected:
Royal Bank of Scotland, HSBC, Barclays and Lloyds Banking Group.
The failed banks have been told to produce firm plans by September to plug capital shortfalls by the year’s end.
The EBA called on national regulators to make sure that lenders strengthen their financial situations.
Critics say the health check was not strict enough. They say the test failed to reflect market expectations that Greece will default on its debt, which would pile up losses for German and French banks that hold large amounts of the country’s debt.