LONDON - A group of 25 European banks have failed a key health check of the region's financial system, exposing a 25 billion euro ($31.7 billion) shortfall on their books. The European Central Bank also found that all of the euro zone's banks have not been strict enough in identifying toxic assets, finding an additional 136 billion euros in non-performing loans.
Of the 25 banks that have failed the ECB's test, which was a snapshot of their books at the end of last year. However, 12 of the banks that failed the test have already covered their capital shortfall. Those banks with shortfalls will now have two weeks to submit a plan to bolster their capital to the European Central Bank, which will decide whether or not it gets the green light. They will then have up to nine months to cover the capital gap.
This year the Europe's regulators have been stress testing the region's financial industry. The reviews, disclosed Sunday in Frankfurt, are a key test of whether Europe is serious about repairing its dysfunctional banking system. The ECB's tests have focused on the asset quality of 130 of the euro zone's key banks. This is not the first time Europe's banks have been stress-tested. However, previous tests were widely discredited as toothless when they passed several banks which then had to be rescued by governments as soon as the economic climate turned sour. It was the cost of propping up these banks that contributed to pushing countries like Spain close to collapse.
- Phillip Tutt, CNBC