MercoPress, en Español

Montevideo, September 25th 2018 - 11:21 UTC

Stress tests expose weakness of EU banks, particularly Deutsche Bank

Wednesday, August 10th 2016 - 05:42 UTC
Full article 1 comment
 “European banks lack sufficient capital to offset the losses expected in the case of another financial crisis,” the ZEW said in a statement on Tuesday. “European banks lack sufficient capital to offset the losses expected in the case of another financial crisis,” the ZEW said in a statement on Tuesday.
ZEW Finance Prof Sascha Steffen worked with NY University Stern School of Business and University of Lausanne researchers to run stress tests used by the Fed ZEW Finance Prof Sascha Steffen worked with NY University Stern School of Business and University of Lausanne researchers to run stress tests used by the Fed
Using the Fed's approach, the 51 European banks showed a total capital shortfall of 123 billion Euros: the largest gaps at Deutsche Bank, Societe Generale, and BNP Using the Fed's approach, the 51 European banks showed a total capital shortfall of 123 billion Euros: the largest gaps at Deutsche Bank, Societe Generale, and BNP

Germany's Deutsche Bank had the highest potential capital shortfall, 19 billion Euros in a study of 51 European banks using U.S. Federal Reserve stress test methods, German economic research institute ZEW said.

 “European banks lack sufficient capital to offset the losses expected in the case of another financial crisis,” the ZEW said in a statement on Tuesday.

ZEW Finance Professor Sascha Steffen worked with New York University Stern School of Business and the University of Lausanne researchers to run stress tests used by the Fed in 2016 and the European Banking Authority (EBA) in 2014 to compare capital needs and leverage.

Using the Fed's approach, the 51 European banks showed a total capital shortfall of 123 billion Euros, with the largest gaps at Deutsche Bank, Societe Generale, (13 billion Euros) and BNP Paribas, (10 billion Euros).

Societe Generale and BNP have market capitalizations of 26 billion Euros and 55 billion Euros, respectively, well above the study's theoretical capital gap.

Deutsche Bank, which has a market capitalization of less than 17 billion Euros, disagreed with ZEW's calculation.

“There is an official EBA stress test that checked the capital backing against very tough and adverse conditions and this showed there was no acute capital need at Deutsche Bank,” the bank said in a statement in response to the study.

Deutsche Bank showed a weaker reading in the EBA test than most of its peers, a sign that Germany's biggest lender still has far to go in a revamp it launched last year. Although the EBA gave the banking industry a broadly healthy prognosis in its stress test results published on July 29, it said there was still work to do.

The EBA tests had no pass or fail mark and many observers said they did not remove concerns over capital. This year's EBA stress test was not aimed at uncovering capital gaps, but ZEW's Steffen said the deficiencies revealed by combined stress scenarios could be overcome.

“The USA have drawn their own conclusions and implemented comprehensive measures for the recapitalization of the American banking sector as early as in 2008,” Steffen said. “A lack of political will means that this has still not happened in Europe,” he added.

Categories: Economy, International.

Top Comments

Disclaimer & comment rules
  • ChrisR

    “The USA have drawn their own conclusions and implemented comprehensive measures for the recapitalization of the American banking sector as early as in 2008,” Steffen said. “A lack of political will means that this has still not happened in Europe,” he added.

    “ZEW Finance Professor Sascha Steffen” has obviously got a short term memory about 2008 and who caused the American driven global money crisis.

    He should watch the film 'Too Big To Fail' which, using the records of the time, clearly shows it was the brainless Bush junior that removed all the safety legislation that was enabled after the Wall Street crash at the insistence of the big banks.

    The banks soon did deals to absorb 'gambling' investment banks into their conventional banking side making them massive financial businesses, literally too big to fail without ruining the country and every other that used the US Dollar.

    Then, to ensure quarterly profits ALWAYS grew, because a fall would bust open the deceit they were perpetrating on everybody, they started with the 'home for everybody' with stupidly low initial interest rates on the loans which rapidly became unsupportable by the 'home owners' when the lapsed interest was added to the real interest. So a lot of blacks, hitherto kept out of the market due to poor finances, were suckered into foreclosure.

    Then, one by one, the big banks went broke and the government had to act to the tune of U$D700 TRILLION. But it wasn't a bailout, that would have been impossible to get past Congress because it would have been seen as government ownership like the Ruskies! NO, it was called a loan for the banks to use to loan in turn to those WHO COULD AFFORD IT!

    Now is there anybody stupid enough to believe the banks would actually loan the money out. Only Bernanke and Paulson. The banks NEVER loaned the money out and the market recovered after two years without it. The banks did eventually pay the money back.

    Stefan needs to be watched very carefully.

    Aug 10th, 2016 - 01:04 pm 0
Read all comments

Commenting for this story is now closed.
If you have a Facebook account, become a fan and comment on our Facebook Page!