In a surprise result that is expected to relieve the funding pressure building on Spanish and Italian banks, banks from both the countries came out strongest in the European stress tests conducted last week.
The tests were however criticised by some for not being tough enough since it failed to take into account sovereign crisis even as Greece is on the verge of a default. The test, conducted by the European Banking Authority showed a combined shortfall of only €2.5billion ($3.5 billion) for eight banks, which surprised many.
Landesbank Helaba, a German bank also failed the test but refused to disclose its result as part of the exercise.
People who have studied the results however, observe that the result will come as a much needed boost for Spanish banks like BBVA and Santander and Italian bank Intesa Sanpaolo, since they have struggling to raise short-term funds at reasonable rates due to the negative sentiments prevailing at domestic market.
“The results draw a distinction between those banks that have unquestionably strong funding and capital and those that don’t”, said Daniel Davies of Credit Suisse, while commenting on the result.
The stress result of European banks is critical since it shows their ability to absorb losses in the event of a possible Greek default and is a crucial aspect of how Greek debts will be restructured when talks between the region’s political leaders and banks take place.
German Chancellor Angela Markel has already said that she’ll attend Thursday’s scheduled meeting in Brussels only if a consensus over resolving Greek debt crisis is reached. She has already talked about involving private creditors in resolving the sovereign debt crisis.
“The greater the voluntary contribution the private creditors make, the less likely will it be that further steps will be needed”, she said, dismissing any rescheduling of Greek debt without involving private creditors.