ECB fails 25 banks in health check but problems largely solved

Sun Oct 26, 2014 2:44pm EDT
 
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By Laura Noonan and Eva Taylor

FRANKFURT (Reuters) - Roughly one in five of the euro zone's top lenders failed landmark health checks at the end of last year but most have since repaired their finances, the European Central Bank said on Sunday.

Painting a brighter picture than had been expected, the ECB found the biggest problems in Italy, Cyprus and Greece but concluded that banks' capital holes had since chiefly been plugged, leaving only a modest 10 billion euros ($12.7 billion) to be raised.

Italy faces the biggest challenge with nine of its banks falling short and two still needing to raise funds.

The test, designed to mark a clean start before the ECB takes on supervision of the banks next month, said Monte dei Paschi (BMPS.MI: Quote) had the largest capital hole to fill at 2.1 billion euros.

The exercise provides the clearest picture yet of the health of the euro zone's banks more than seven years after the eruption of a financial crisis that almost bankrupted a handful of countries and threatened to fracture the currency bloc.

While 25 of the euro zone's 130 biggest banks failed the health check at the end of last year with a total capital shortfall of 25 billion euros, a dozen have already raised 15 billion euros this year to make repairs.

A recent investor survey by Goldman Sachs found they believed the ECB ought to ask lenders to raise an additional 51 billion euros of capital for the tests to be credible.

Although investors may take heart, it remains to be seen whether the exercise can spur banks to lend more as the region's economic growth stutters to a virtual halt.   Continued...

 
The skyline of the banking district is pictured in Frankfurt, October 21, 2014. REUTERS/Ralph Orlowski