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12th July 2011

Friday night is European stress test result night

The European Banking Authority and national regulators are to release the results of the European stress tests on Friday after markets close. The EBA is determined to learn from the dissemination shambles that occurred last years under the management of its predecessor and has a carefully planned schedule - though one showing the usual European political wrangling


At 6pm CEST/ 5pm BST Summary information on banks to be published by the EBA. The Banks themselves to publish their individual results but must use the EBA template from 6pm. Precisely one minute later National supervisors to publish summary results for banks under their jurisdiction. At 6.30pm / 5.30pm National supervisors to publish individual bank full details. Followed precisely one minute later by the EBA publishing the individual bank details. At 7pm / 6pm the EBA press conference will start.


One consequence of the timetable is that the dissemination will occur whilst US markets remain open. The reaction from the US markets then likely to be carried forward to the Asian markets next Monday. There had been calls for the data to be released after US markets close.


Another European compromise is at which point of time at which the bank's strength - or not - is measured. At its core is the now rather historic 2010 year end however "The impact of existing mitigating measures which will strengthen the capital base at 2012 as a result of committed equity raisings, and mandatory restructuring plans announced and fully committed by 30 April 2011" will also be included.


The top 91 banks in Europe which account for 65% of total banking assets. Regarding the problems encountered within this year's stress test the EBA comments:
"A quality assurance and peer review process (was) carried out by EBA staff assisted by a team of experts from national supervisory authorities, the European Central Bank and the European Systemic Risk Board. During this process, additional guidance was sent out to banks early in June to address shortcomings and over-optimism of some banks' preliminary estimates."


The presentation of the results will also include clear disclosure of credit and sovereign exposures.


It was previously agreed that banks who fail the stress test will be given until September of this year to come up with corrective plans. Banks unable to come up with credible market plans may have to accept state aid. As with past rounds of state aids this would come with consequences forcing the banks to sell of businesses and downsize as remedies for the distortion to the free trade market caused by the state aid. The basic pass / fail measurement is 5% Core Tier 1. To the annoyance of some countries the definition is (close to) that proposed under Basel III.


Analysts mainly expect the failures in Southern Europe with attention on the larger second tier banks in Spain, Italy and Greece. Whilst there had been concerns over some second level German banks most analysts now think they should scrape through. One of the issues especially affecting Germany was over the definition of acceptable capital with the strict CT1 definition causing some issues for certain banks.