Comprising the asset quality review (AQR) and a forward-looking stress test of the banks, the year-long examination found a capital shortfall of €25bn at 25 European banks, of which 12 have already covered their capital shortfall by increasing their capital by €15bn in 2014.
Conducted by the ECB and national competent authorities, the AQR showed that the book values of banks’ assets need to be adjusted by €48bn, €37bn of which did not generate capital shortfall, as of end-2013.
In addition, the review found that the participant banks’ non-performing exposures increased by €136bn to a total of €879bn in the specified timeframe.
ECB vice-president Vítor Constâncio said: "This unique and rigorous exercise is a major milestone in the preparation for the Single Supervisory Mechanism, which will become fully operational in November.
"This unprecedented in-depth review of the largest banks’ positions will boost public confidence in the banking sector.
"By identifying problems and risks, it will help repair balance sheets and make the banks more resilient and robust. This should facilitate more lending in Europe, which will help economic growth."
The assessment also indicated that the adverse stress scenario would deplete banks’ capital by €263bn, thereby reducing median Common Equity Tier 1 (CET 1) ratio by 4% points from 12.4% to 8.3%, which is higher compared to previous similar exercises.
The remaining banks with shortfalls have been directed to prepare capital plans within the next two weeks, and are given up to nine months to cover the capital shortfall.
According to ECB, the largest 30 participating banks undertook various measures, including capital raising to €60bn, to strengthen their balance sheets by a total of more than €200bn, since the announcement of the exercise in July 2013.
Image: The European Central Bank building in Frankfurt, Germany. Photo: ArcCan.
