Financial district in London
Photo: DANIEL LEAL-OLIVAS / AFP
Europe's banks are, by and large, robustly positioned to weather a new economic crisis.
The banking supervisors of the European Union come to this conclusion after their latest crisis test, the results of which the EBA published this Friday.
In a hypothetical crisis scenario, the institutions would lose almost a third of their capital buffers.
Nevertheless, the EU banking sector as a whole would remain above the 10 percent mark with the core tier 1 capital ratio as a buffer for possible setbacks.
On the basis of their balance sheet for the Corona crisis year 2020, the supervisors had the financial institutions calculate how much capital buffers would shrink by the end of 2023 if the pandemic and economic downturn came to a head and the EU economy collapsed by 3.6 percent.
In addition, a whole bundle of unfavorable developments was assumed: rising unemployment, collapse in property prices, sharply falling foreign demand, further falling market interest rates.
In this hypothetical crisis scenario, the EU banking sector would lose a total of 265 billion euros in capital buffers according to EBA calculations.
The core capital ratio as a buffer for crises would decrease from 15.0 percent at the end of 2020 to 10.2 percent at the end of 2023.
According to the EBA, the main reason for the amalgamation of the capital buffers would be an increase in loan defaults.
Deutsche Bank does poorly
50 banks from 15 European countries were examined.
These included seven German institutes: BayernLB, Commerzbank, Deutsche Bank, DZ Bank, Landesbank Baden-Württemberg, Landesbank Hessen-Thuringia, and Volkswagen Bank.
Overall, they did a little worse than the average.
Deutsche Bank was hit hardest by the hypothetical crisis scenario among the local financial institutions.
According to this, the core capital ratio of the largest German financial institution would fall from a good 13.6 percent at the end of 2020 to a good 7.4 at the end of 2023 in the event of an economic slump.
The best German institute in the EBA test was Volkswagen Bank, which still had a core capital ratio of 15.48 even in the most severe stress scenario.
The top cooperative institute, DZ Bank, ended up with 10.21 percent, exactly in line with the European average.
Banks cannot fail the tests.
However, financial institutions that have fared worse must expect to increase their capital buffers.
Since the global financial and economic crisis of 2008/2009, supervisors around the world have regularly used such stress tests to check how vulnerable banks would be in the event of a crisis.
Such tests and the conclusions drawn from them are not undisputed, because which risks are weighted and how heavily in the hypothetical scenarios ultimately lies in the hands of the supervisors.
The new edition of the European bank stress test should actually be carried out in 2020.
But in order not to burden the institutes with further tasks in the middle of the Corona crisis, the EBA postponed the examination for a year.
hej / dpa