EU, ECB, regulators welcome stress test results

The results of stress tests on 91 European banks confirm the overall resilience of the European Union banking system, the European Commission, the European Central Bank and European banking supervisors said in a joint statement on Friday.

The results, released by the banks and the Committee of European Banking Supervisors (CEBS), showed that seven of the 91 banks failed the tests under the most adverse conditions.

"Accordingly, the results of the test confirm the overall resilience of the EU banking system to negative macroeconomic and financial shocks, and are an important step forward in restoring market confidence," the statement said.

"The adverse scenarios used in the stress test are designed as 'what if' scenarios reflecting severe assumptions which are therefore not very likely to materialise in practice."

It said banks that failed the test should first seek to reinforce their capital base via the private sector and resort to their national governments if necessary, all the while respecting EU state-aid regulations.

Of the seven that failed, one was Germany's Hypo Real Estate bank, one was Greece's Atebank<AGBr.AT> and the remainder were smaller Spanish savings banks. The total capital shortfall was a relatively small 3.5 billion euros ($4.5 bln), CEBS said.

The ECB said it welcomed governments' decisions to put support measures in place to help the banks that failed.

It also spelled out the detailed methodology that was used to test banks' resilience.

http://www.ecb.int/pub/pdf/other/technicalnoteonmacroeconomicscenariosreferenceriskparamen.pdf?ab1825759d8fdd58a3d5e247088d0314

For separate ECB statements click

http://www.ecb.int/pub/pdf/other/euwidestresstestingexercise-qaen.pdf

http://www.ecb.int/press/pr/date/2010/html/pr100723.en.html

(Writing by Luke Baker, editing by Timothy Heritage)