EUROPEAN BANKS AND CAPITAL SHORTFALL

European banks lack sufficient capital to offset the losses expected in the case of another financial crisis. Quite how big losses are depends, however, on the stress level to which banks are subject. The European Banking Authority (EBA) stress test provides transparency in regard to bank capital adequacy in stress scenarios, but  does not to reveal capital shortfalls that need to be taken care of immediately. 

A recent study carried out by Sascha Steffen (Centre for European Economic Research (ZEW) and University of Mannheim) together with Viral Acharya (New York University Stern School of Business) and Diane Pierret (University of Lausanne) has considered results from the latest round of stress tests carried out for European banks. The study shows that the measured capital shortfalls differ to the extent of billions according to the stress scenario and the stress test methodology used. In particular, substantial differences are seen for banks in France, the United Kingdom, in Germany, Spain, and Italy.

The researchers based their comparison on two benchmark methodologies; the approach taken by the European Banking Authority (EBA) in stress tests conducted in 2014, and the approach used by the US Federal Reserve (Fed) in the stress test conducted in the US banking sector in 2016 (CCAR 2016). Building on assumptions made in the EBA and Fed stress tests, researchers used a third, market-based approach, which assumed a global stock market decline of 40 per cent over six months. As in the EBA stress test conducted in 2016, the study considered 51 European banks, 34 of which are publicly listed.

Under the EBA methodology, the capital shortfalls of all 51 banks totaled 5.6 billion euros. The CCAR 2016 approach resulted in total capital shortfalls of 123 billion euros for all 51 banks. The banks with the largest capital shortfalls are the Deutsche Bank (19 billion euros), and the French banks, Société Générale (13 billion euros) and BNP Paribas (10 billion euros).

If the 34 publicly listed banks are considered, the differences between measured capital shortfalls are even more stark. Capital shortfalls of the publicly listed banks in the market-based approach totaled 675 billion euros, whilst the Fed stress test revealed shortfalls of 92 billion euros. The banks with the largest capital shortfalls were the French banks, Crédit Agricole (79 billion euros) and BNP Paribas (75 billion euros), and the Deutsche Bank (60 billion euros).

Austria

1. Erste Group Bank AG
2. Raiffeisen Landesbanken-Holding GmbH

Belgium

1. Belfius Banque SA
2. KBC Group NV

Denmark

1. Danske Bank
2. Ivske Bank
3. Nykredit Realkredit

Finland

1. OP Osuuskunta

France

1. Groupe Crédit Mutuel
2. La Banque Postale
3. BNP Paribas
4. Groupe Crédit Agricole
5. Groupe BPCE
6. Société Générale SA

Germany

1. Deutsche Bank AG
2. Commerzbank AG
3. Landesbank-Baden-Württemberg
4. Bayerische Landesbank
5. Norddeutsche Landesbank Girozentrale
6. Landesbank Hessen-Thüringen Girozentrake
7. NRW.BANK
8. Volkswagen Financial Services AG
9. DekaBank Deutsche Girozentrale

Hungary

1. OTP Bank Nyrt

Ireland

1. Allied Irish Banks plc
2. The Governor and Company of the Bank of Ireland

Italy

1. Intesa Sanpaolo S.p.A.
2. UniCredit S.p.A.
3. Banca Monte dei Paschi di Siena S.p.A.
4. Banco Popolare- Società Cooperativa
5. Unione Di Banche Italiane Società Per Azioni

Netherlands

1. ING Groep N.V.
2. Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A.
3. ABN AMRO Group N.V.
4. N.V. Bank Nederlandse Gemeenten

Norway

1. DNB Bank Grouµ

Poland

1. Powszechna Kasa Oszczednosci Bank Polski SA

Spain

1. Banco Santander S.A.
2. Banco Bilbao Vizcaya Argentaria S.A.
3. Criteria Caixa S.A.U.
4. BFA Tenedora de Acciones S.A.U.
5. Banco Popular Espanol S.A.
6. Banco de Sabadell S.A.

Sweden

1. Nordea Bank-group
2. Svenska Handelsbanken- group
3. Skandinaviska Enskilda Banken- group
4. Swedbank- group

United Kingdom

1. HSBC Holdings
2. Barclays Plc
3. The Royal Bank of Scotland Group Public Limited Company
4. Llyods Banking Group Plc