Stress Test 2 Results Are Out: 8 Banks Fail - 5 Spanish, 2 Greek, 1 Austrian

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The farce continues: Moody's predicted 26 failures, Eurostat gives us 8. EBA says 5 Spanish, 2 Greek, 1 Austrian Bank fail as of April 30; EBA says 7 Spanish, 2 German, 2 Greek, 2 Portuguese barely pass. EBA says 16 of 90 banks had core capital of 5% to 6% and will have to take action to improve capital buffers. EBA says EU banks average CT1 7.7% in adverse Scenario, as of April 30. Looking forward to next year's Stress Test. As expected, risk is broadly on in the EUR, as the "sell the farce" moment approaches. The reason why the bank rollover is so urgently pushed is because two
thirds of all Greek debt is held by Greek banks who then pledge it back
to the ECB at par. Specifically, 67% of Greek debt is held by Greek
banks, 9% by German banks, and 8% by French banks. Then these same Greek
banks that "roll" their Greek sovereign debt receive even more cash
handouts from the Greek central Bank, which in turn is funded from the
ECB. Biggest Ponzi clusterfuck ever.

The banks that have failed are Spanish: Unnim, CAM, Catalunyacaixa, Banco Pastor, Caja3, Greek: Eurobank, Atebank, and Austrian: Volksbanken.

The reason why the bank rollover is so urgently pushed is because two thirds of all Greek debt is held by Greek banks who then pledge it back to the ECB at par. Specifically, 67% of Greek debt is held by Greek banks, 9% by German banks, and 8% by French banks. Then these same Greek banks that "roll" their Greek sovereign debt receive even more cash handouts from the Greek central Bank, which in turn is funded from the ECB, while at the same time providing collateral to the standalone banks. Biggest Ponzi clusterfuck ever.

Among the funniest news is that the total capital deficiency is just $3.5 billion:

Eight banks failed the European Union stress tests after regulators said they had a combined capital shortfall of 2.5 billion euros ($3.5 billion).

The banks were found to have insufficient reserves to maintain a core tier 1 capital ratio of 5 percent in the event of an economic slowdown, the European Banking Authority said.

The assessments are the first by the European Banking Authority since it was set up earlier this year. Last year’s tests by its predecessor were criticized for not being tough enough because banks were shown to need only 3.5 billion euros more capital, a 10th of the lowest analyst estimate. Banks that fail the stress test must present a plan to raise more capital within three months.

“Any institution failing the stress test could be left facing funding challenges, the potential loss of stakeholder confidence and the risk of a credit-rating downgrade,” Steve Pearson, a partner at PricewaterhouseCoopers LLP, said in a note to clients. “Experience has shown the premium the riskier institutions might have to pay to retain some of their depositors could increase to an unsustainable level.”

Here is the joke of an assumption in sovereign bond valuation haircuts in the Adverse scenario which was not used. Greece peaks at 29.5%: its CTD bonds already trade with a 50% discount. Tragic.

Full release:

Press Release

And the summary report:

Summary Report