ECB faces test of its own as Europe braces for landmark banking review

Sat Oct 25, 2014 11:18pm EDT
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By Laura Noonan and Eva Taylor

FRANKFURT (Reuters) - After putting the euro zone's top 130 banks through their paces, the European Central Bank will face a test of its own on Sunday - will its landmark health check succeed in convincing investors the region's lenders are safe?

The ECB will announce the names of 25 banks that held too little capital at the end of last year, along with details of around 10 banks that have not yet made up the shortfall. The announcement is due at 1100 GMT.

As well as the number of failures, Reuters has already reported details of several banks' performance, including that Germany's Deutsche Bank (DBKGn.DE: Quote) and Greece's Alpha Bank (ACBr.AT: Quote) passed the tests while Ireland's Permanent TSB [IPMIL.UL] failed.

Other media outlets have also reported how some banks and countries' banking systems have fared.

With much of the news revealed in advance, the major remaining question is whether the exercise will be judged credible enough to banish lingering fears about euro zone banks, freeing them up to lend again and tempt U.S. investors back to European banking shares.

The ECB has staked its reputation on delivering an independent assessment of the euro zone banks before it takes over as their supervisor on Nov. 4.

The European Banking Authority (EBA), which will include the ECB results in an announcement of EU-wide stress test results at the same time on Sunday, is hoping its exercise will prove more convincing than previous rounds in 2009, 2010 and 2011.

The euro dipped on Friday amid uncertainty about the results, while euro area banking stocks were volatile as rumours swirled about who had passed and who had not. Initial comments from investors on Sunday and trading in banks on Monday will be the first real indication of how the tests are judged.   Continued...

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