British and German banks in trouble during EU "stress tests"

UK and German banks have suffered the biggest financial successes from the latest round of "stress tests" issued by European regulators on Friday, as risks such as Brexit and Italy's debts threaten 39, European economy.

On the whole, however, the European Banking Authority (EBA) and the European Central Bank (ECB) have stated that stress tests have shown that European banks are in better shape thanks to the clean-up measures undertaken since the financial crisis 2008 World.

The fiscal year 2018 showed that, in the context of a serious recession planned at the EU level until 2020, Lloyds, Barclays and Royal Bank of Scotland in Great Britain would be among the worst performers, alongside Deutsche Bank and many regional lenders in Germany.

The results of the EBA will inform the EU supervisory authorities on the desirability of insisting that banks strengthen their own funds to protect themselves from potential losses.

"The results confirm that the participating banks are more resilient to macroeconomic shocks than two years ago" during the latest stress tests, said Daniele Nouy, ​​chairman of the ECB's supervisory board.

"Banks have significantly increased their capital, while reducing non-performing loans and, among other things, improving their internal controls and risk management governance," she said.

"In the future, the test will help us determine the areas in which banks are most vulnerable and the groups of banks most sensitive to certain risks."

Brexit was one of the factors behind the exercise. Britain is due to leave the European Union next March and still needs to agree on an orderly exit with Brussels, leaving banks exposed to the risk of trade and financial transactions being interrupted Channel.

Barclays, which is considered by the authorities as a "systemic" player in the European banking system, saw its leading capital ratio fall to 6.37% in 2020, compared with a starting level of almost 13% in the worst case scenario.

Deutsche Bank, which, like Barclays, was severely burned by the global crisis a decade ago, saw its capital ratio drop from nearly 14% to 8.14%.

The numbers, which measure the ratio of funds that banks must hold against a rainy day, were too low for systemic players with large-scale operations around the world.

"Our risk profile is sound," Deutsche Bank Chief Financial Officer James von Moltke said in a statement, adding that the supervisors had artificially worsened the bank's bottom line, assuming that the past single losses would be repeated each year. year.

– The dividend stops –

Barclays and Deutsche were among the 25 banks that, in the worst case scenario, would be required by regulators to stop paying dividends to boost their capital.

HSBC (Great Britain), Commerzbank (Germany), Santander (Spain), BNP Paribas (France), Societe Generale, ING (Netherlands) and Unicredit (Italy).

Italian banks risk being exposed to a battle between Rome and Brussels over the budget of the new populist government, with potentially serious consequences for their large holdings in public debt.

However, they have withstood the last tests of resistance well enough after having been subjected to greater fundraising after the 2008 crisis.

The banks of the bailed out Greece were the subject of separate surveillance published in May.

Between January and October, 48 lenders from 14 countries in the European Union and Norway were examined under the microscope.

The projected recession by EBA predicted a 2.7% fall in the EU's gross domestic product between 2018 and 2020.

By the end of the period, the European economy would be reduced by 8.3% compared to steady growth.

In addition, the tests simulated unemployment, which had reached the levels reached in 2009, during the financial crisis.

Banks have experienced an even more difficult situation compared to the last tests of 2016, the new accounting rules requiring them to update their balance sheet earlier to reflect potential losses on debt or other risky assets.

However, as a whole, EBA said its tests had shown that European banks were showing a much better "resistance and capacity" to resilience to financial shocks compared to a decade ago.

The stress tests conducted by the European Banking Authority inform the discussions of the EU supervisory authorities on the desirability of insisting that banks strengthen their own funds to protect themselves from losses potential

The stress tests showed that, in the context of a serious recession predicted at the EU level until 2020, Lloyds would be among the worst performers.

Deutsche Bank is among the 25 banks that, in the worst-case scenario of the stress tests, would be required by regulators to stop paying dividends and boosting their own funds