The results, revealed at the end of 2014, evaluated the banks’ assets and how they would
be affected by financial and economic shocks,
and whether banks would have enough
capital to absorb the losses. Supervisors of
the test considered whether the banks were
correctly valuing their assets and how much
exposure they have to the debts of their
national governments.
The banks were put to a simulated situation
of a 7% drop in gross domestic product,
combined with an increase in European unemployment of 2.9 percentage points.
When put to the test, 24 banks failed, with
a combined capital shortfall of just over €24
billion. However, the review was based on the
banks’ financial health at the end of 2013, since
which ten banks have raised capital to improve
their balance sheets, leaving 14 EU banks
needing to raise €10 billion over the next nine
months.
Italian banks fared worst, with Greek banks
coming next.
In the scenario, no major banks failed, although
several came close. Lloyds Banking Group PLC
and Royal Bank of Scotland ended the exercise
with capital ratios close to the lower end of
the “acceptable” scale and will undergo further
stress tests by the Bank of England.
Because of its earlier experiences with banks
requiring government bailouts, the EU has
established requirements that every country
have a guarantee scheme to reimburse
account holders up to a set limit of €100,000
per depositor per banking group. Channel
Islands and Isle of Man have limits of £50,000,
which equates to about €64,000.
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