Results of the latest Bank Stress Tests are in – and eight of the 90 European banks tested have failed to show they can withstand another financial crisis.
A further 16 banks were deemed to be ‘in the danger zone’, only managing to scrape a pass – that means they will quickly need to resolve capital shortfalls.
Britain’s four leading banks all passed the test, which is reassuring if not entirely unexpected. But the Stress Tests, carried out by the EBA are far from definitive – and indeed have been roundly criticised by many in the financial industry.
That’s because this year’s tests did not take into account the impact of Greek banks defaulting – something which looks far from impossible given the current climate.
This may mean many more than the 24 identified banks are actually in trouble, should things take a turn for the worse.
It’s worth remembering too, that the previous round of stress tests, carried out just last year, passed the Irish bank AIB. Just a couple of months later, AIB were in serious trouble and requiring a government bail-out.
EBA insist that the 2011 tests were carried out against more stringent criteria, but confidence in the tests – and indeed the banks – remains low.
Following publication of the results, bank shares were firmly in the red – with Barclays a noted faller.
So what does this mean?
If you are in business don’t expect any improvement in increases by the banks in lending or an improvement in terms. If you have monies deposited with any bank you should ensure that it falls within the protected deposit terms.
If you have substantial cash deposits, then in our opinion, cash is probably the least safe asset class – so you need to take advice!