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- Newslink Trends-The Global Strategic Perspective
- Juniper Research says digital wallet users to exceed 4.4 billion by 2025, as mobile drives digital payments’ revolution
- Criminals exploit COVID-19 pandemic with rise in scams targeting victims online
- Equifax says Open Banking proving pivotal to pandemic lending
- Consumer confidence in banks, credit card providers and investments remain stable as demand supercharges digital finance says Toluna research
- Mintos says Europeans are starting to embrace investing
- US banks see IT modernisation as a way to improve customer experience
- Risk mitigation in global trade depends on digitisation-Andrew Raymond, CEO, Bolero International comments
- Juniper Research new study says the volume of B2B payments facilitated by non-banks will exceed 53 billion in 2022, from a COVID-related low of 38 billion in 2020
- CMA issues fifth publication over 3 years of the service quality league table of personal and business current account providers
- Barclays says scammers take advantage of COVID-19, cashing in on nations’ uncertainty
- S&P Global report says financial market infrastructure sector's earnings likely to cool off In second half
- Global banking market capitalisation slumps by over 30% amid pandemic says Buyshares research
- Digital wallet spend in Europe & North America to increase by 40% in 2019, finds study
- Juniper forecasts mobile money transactions will exceed 200 billion by 2024
- Banks can save the world from climate change, says former UN climate chief
- Research by NatWest reveals gender divide over attitudes to saving
- Europe’s big bank problem: too much capital is trapped in the US, says Scope
- Later-Life lending market set to almost double in the next 10 years, finds report
- Barclays/Cebr report challenges nation to think differently about wealth
- Fifth of UK investors looking to debt investment, new research reveals
- Regtech will play a more important role in PSD2, says Mitek
- Banks turn to Fintech partnerships to improve customer experience, finds Fraedom
- New industry code to tackle fraud must deliver, says Which?
- New TTF report highlights loss of trust in financial services
- Arxan highlights financial app vulnerability epidemic
- SAS asks whether banks really need to choose between operations and innovation
- Which? raises alarm as almost 1,700 free ATMs become fee-charging
- Financial wellness affects half of peoples’ mental or physical health, finds report
- Study finds traditional financial institutions embrace Fintech disruption
- Grass is greener for environmentally friendly businesses, finds Barclays
- Prospective homeowners would consider a 40-year mortgage to escape renting, finds Santander
- Millennials’ needs are changing the face of banking industry, says new report
- FS is putting consumer data at risk by failing to protect mobile apps, says Arxan
- A lack of belief in their ability holds 28% women back in work, says Cambridge & Counties
- ‘Which?’ reveals Scotland has lost over a third of its bank branches in eight years
- Next downturn unlikely to be as bad as 2008, according to S&P
- FCA reveals findings from first cryptoassets consumer research
- US consumers favour single mobile app for banking and payments
- Banks suffering major IT shutdowns every day, ‘Which?’ reveals
- The US will be a key offshore centre in 2019, says GlobalData
- Debit industry changes markedly in 10 years of the Debit Issuer Study
- UK's ‘Big Five’ face ‘too big to compete’ as small challengers secure stellar returns
- Banks as vulnerable now as before crash, says new study
- Leverage ratio a constant conundrum for European and US banks, says SNL
19th July 2011
The lesson from the European stress test.
Opinion
Market players, observers and media have struggled to offer conclusions following the European stress test. Before discussing the conclusions first is a summary of the results. The banks that failed were:
Austria : Oesterreichische Volksbanken AG
Greece : Agricultural Bank of Greece (ATE) and EFG Eurobank Ergasias SA
Spain : Banco Grupo Caja3, Banco Pastor SA, Caja de Ahorros del Mediterraneo, CatalunyaCaixa and Unnim.
As discussed previously Landesbank Hessen-Thueringen (Helaba) would have failed except it withdrew from the process. The fact a bank can withdraw from the process appears strange to many. As its shareholders are the state of Hesse and the local savings banks it can be argued that its inclusion or exclusion are of less direct importance. The argument over the inclusion of silent participation or not - could attract EC interest however. The bank argues that as the state has given an explicit guarantee then the bank cannot be other than solid. However this same guarantee could be seen as unfair state aid and draw action from the European Commission Competition Commissioner, as WestLB has done so before. Spain too argues that some of the capital instruments used in Spain should have been included by the EBA.
When it comes to the banks who marginally passed - those with over 5% and under 6% Core Tier 1 capital some bigger names appear - Banco Comercial Portugues, Espirito Santo Financial Group, HSH Nordbank AG and Norddeutsche Landesbank. Both Portuguese banks have plans to boost capital. The Germans' continue to complain over the exclusion of silent participation, fighting a battle already lost in regard to Basel III implementation.
Much has been written about the assumptions in the stress test with regard to a Greek default. Most commentary entirely misses the point, the fact is that other than for Greek banks, and possibly Cypriot banks Greece defaulting would not be a major calamity. Even if there was total default by Greece the effect would be:
End 2010 Greek Sovereign Debt €98.2bn Greek Institutional Debt €17.2bn
Exposure Sovereign Institutional Combined exposure
of banks in % % €bn
Cyprus 7 12 8.9
France 8 5 8.7
Germany 9 10 10.6
GREECE 67 69 77.7
The only argument that can be put forward over the seriousness, in continental terms of a Greek default, is those suggesting a domino effect, that pressure would then move on to the next weakest and the next weakest after in turn. Whilst this is potentially something that will have to be addressed at EU level the effects are so far into the unknown it is not reasonable for the EBA stress test to even begin to model.
So, perhaps the lesson from the European banks stress test is that the designers of it may have been a little cleverer than they have been given credit for. What the EBA may be successfully doing is forcing the increase in capital gross amount and in quality of capital at a pace well ahead of the Basel III timetable and at the fastest pace it is possible to proceed, at without having major countries refuse to participate. Thus helping derisk European banking relating to one of the key risk dimensions.