Analysts say Spain cannot keep running away from its problems. Photo: Reuters
ABOUT two dozen European banks were put under official pressure late last week to bolster their reserves, as the results of financial stress tests created more scepticism over the region's will to deal with its festering financial crisis.
The high pass rate under the exams did not satisfy analysts' hopes for a bolder accounting that would help restore confidence in the health of the European Union financial system and remove doubt about the effects of a default by Greece on its government debt.
Following a vast data-crunching exercise by regulators, only eight out of 90 banks were deemed too weak to survive economic shocks such as a further deterioration in the sovereign debt crisis.
A ninth bank, Helaba, of Germany, would have failed, but refused to disclose its data. An additional 16 passed narrowly and will be asked to take steps to ''promptly'' increase their resilience by raising more capital, for example, the regulators said.
''The publication of these results will not assuage investors' fears over the resilience of the EU banking sector,'' an economist with Ernst & Young, Marie Diron, said.
Of the banks that failed, five were in Spain, two in Greece and one in Austria, the European Banking Authority, which conducted the tests, said.
All were relatively small players. But the stress-test results could also put pressure on some giant banks that have been regarded as healthy, including Deutsche Bank in Germany, UniCredit in Italy and Societe Generale in France. Capital reserves at all three were uncomfortably close to the level where they would have been formally asked to either raise more capital or reduce risk.
The test results come amid rising anxiety that Greece is on the verge of defaulting on its debt, an event that could provoke a banking crisis because so much of those bonds are parked on the balance sheets of European financial institutions. As a result, the stress tests have clear implications for the overall health of the euro zone.
''To me the real question is not stress in the institutions but the ability of states to control the sovereign debt'' problem, the head of financial services in Europe for the consulting firm Bain & Co, Paolo Bordogna, said ahead of the release of the results.
Analysts had been sceptical that the tests this year were rigorous enough to clear up doubts about the European banking system and to encourage institutions to begin lending to each other again rather than relying on the European Central Bank for funds.
The EBA, for example, did not examine what would happen if Greece proved unable to pay its debts, which critics saw as a major flaw.
''This year's tests still did not include the impact of a formal debt default by a European government, which is the single greatest risk facing the European banking sector at present,'' Ms Diron wrote.
But European officials argued that, even if people thought the tests were too forgiving, they now had a huge amount of data they could use to run their own stress evaluations, including detailed information on bank holdings of government debt.
''We are putting out a lot of information so that investors and analysts can make up their own minds,'' the chairman of the EBA, Andrea Enria, said. The banks that failed or passed narrowly must now seek more capital from markets or governments. In extreme cases, they may have to be sold to other institutions or be wound down.
But it will be up to national governments and the banks themselves to find any additional capital.
Mr Bordogna said the tests would be useful to the extent that they put pressure on banks to take remedial measures.
''It's a very strong signal to the managers about what they need to do, so there is a value to that,'' he said. The new data, however, will not erase another major uncertainty: which banks have underwritten credit-default swaps on debt from Greece and would face huge liabilities if Greece could not pay.
NEW YORK TIMES
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