Europe’s latest bank stress test was flawed, and dozens of the region’s lenders, including Deutsche Bank and BNP Paribas, aren’t sufficiently capitalized to improve the economy’s anemic growth or withstand a repeat of the 2008 financial crisis.
Bloomberg News reports that those are the conclusions of analysts at Keefe, Bruyette & Woods Inc. and the Danish Institute for International Studies who looked at what would have happened if the European Central Bank had applied a leverage minimum that will be introduced next year.
A third study by the Centre for European Policy Studies showed Deutsche Bank and BNP Paribas above the cutoff, while 28 other banks that passed the stress test failed.
The new standard requires banks around the world to have capital equal to 3% of total assets, complementing a system that weights them for risk. If the ECB had used that yardstick and demanded the highest quality capital, 12 big European banks that passed the stress test would need to raise an additional $82bn, according to Jakob Vestergaard, a senior researcher at the Danish institute.
To access the complete Bloomberg News article hit the link below: