EBA Releases Details Of €106 Billion Bank Capital Shortfall

Tyler Durden's picture

Here are the EBA's latest stress test results, or, more specifically, the worthless exercise of how much capital European banks need to get to both 9% Tier 1 as well as to build a "temporary capital buffer against sovereign debt exposures to reflect current market prices." Let's not forget that in the last two stress tests, the EBA found something like a grand total of €5 billion in capital deficiency. This time, the joke is again on the EURUSD traders, as the number for Tier 1 at 9% satisfaction is €106 billion, below the €200 billion projected by the IMF, the €400 billion projected by Credit Suisse, and €1 trillion calculated by Goldman Sachs. Granted the number excludes a further €40.6 billion in sovereign capital buffer, so altogether the number is about €147 billion. Furthermore, if you live in Ireland, you are in luck: none of your nationalized, insolvent banks need additional capital. Neither do banks in Hungary, which is about to be downgraded by the rating agencies, Finland or the Netherlands. Stunningly, Dexia which 5 months ago, sailed through the EBA's farce of a test with flying colors now needs a whopping... €4.1 billion. This is a bank which a few weeks ago had around €47 billion in collateral calls. As for banks that need the most capital to reach their targeted capital buffer of 9% Tier 1, Greece needs €30 billion, Spain needs €26 billion, and Italy needs €14.8 billion. Oh yes, France, which contrary to previous media reports of needing to liquidate hundreds of billions, apparently somehow only needs €8.8 billion. Here is our napkin math: take whatever the EBA estimates, and multiply it by 10. You will then be only 25% less than what the  final capital shortfall is. Unfortunately for the EBA, the number of idiots who will fall for this "third time is the charm" farce can be counted on one finger (at best).

Here is the full, horrendously misnamed report from the EBA (source)

The EBA details the EU measures to restore confidence in the banking sector

The European Banking Authority (EBA) supports the agreement at EU level on measures to restore confidence in the banking sector. These measures form part of a broader package aimed at addressing the current situation in the EU by restoring stability and confidence in the markets. Their implementation is conditional on the other components of the package being fully clarified and endorsed.

The EBA’s contribution to the overall package focuses on the capital and term funding needs in the EU banking sector against the backdrop of the increasing concerns regarding sovereign debt.

Term funding guarantee scheme

Notwithstanding the European Central Bank’s (ECB) support for banks short term funding needs, additional steps are required to restart the term unsecured funding market. This would help banks to continue their lending activities in 2012 and to avoid a spiral of forced deleveraging and the ensuing credit crunches, which would affect the real economy.

To this end, public guarantee schemes should be set in place where appropriate to support banks’ access to term funding at reasonable conditions. A coordinated approach at EU level is needed, especially in terms of entry criteria, pricing and conditions. The EBA has been asked to work with the EU Commission, the ECB and European Investment Bank (EIB) to urgently explore options for achieving this objective.
Measures to strengthen banks’ capital positions
In light of the substantial increase in systemic risk triggered by the sovereign debt crisis in the euro area, the EBA has designed a capital package which, while recognising the significant steps already taken to strengthen capital positions in the EU, aims at providing a further capital buffer for the EU banking system.
Banks are required to strengthen their capital positions by building up a temporary capital buffer against sovereign debt exposures to reflect current market prices. In addition, banks are required to establish a buffer such that the Core Tier 1 capital ratio reaches 9%. Banks will be expected to build these buffers by the end of June 2012.
The building of these buffers will allow banks to withstand a range of shocks while still being able to maintain an adequate capital level.
A preliminary and indicative aggregated capital target at the EU level, based on June’s figures and end-September sovereign bond yields, amounts to 106 bn Euros (see breakdown by country below). The EBA expects to disclose the final capital shortfall in the course of November, based on banks’ figures as at 30 September 2011 when individual banks will be asked to disclose their capital and sovereign debt position.

Banks will be required, by the end of 2011, to submit to their respective national authorities their plans detailing the actions they intend to take to reach the set target. These plans will have to be agreed with National Supervisory Authorities and discussed with the EBA. The targets will have to be achieved avoiding excessive deleveraging, so as to contain the potential impact on the real economy. To reach the targets, banks will be expected to withhold dividends and bonuses.

The capital needs will be met only with capital of the highest quality. For private instruments, only new issuances of very strong convertible capital will be accepted if in line with strict and standardised criteria to be defined by the EBA.
Breakdown by country of estimated capital target buffers
Estimated target capital buffer
Sovereign capital buffer*
AT (1)
BE (2)
GR (3)
NO (4)
amounts are in million Euros
* The sovereign capital buffer is indicative and can already be covered by existing CT1 capital if the CT1 ratio exceeds 9%.
Notes to editors
(1) A substantial part of this amount is attributable to Volksbank Group and should be considered as pro-forma. This group is currently under deep restructuring and evaluation of its business model after which Volksbank Group shall end up in a regional active bank.
(2) This amount, which is attributable to Dexia Group, should be considered as pro-forma. After the cut-off date of 30 September, this Group has indeed been deeply restructured through the sale of Dexia Bank Belgium to the Belgian State for 4 bn euros while a state guarantee is hitherto provided on the funding issued by Dexia SA and its subsidiary Dexia Credit Local. Furthermore, other disposal of important operating entities will take place in the coming months.
(3) The capital package for Greece has been defined in such a way not to conflict with pre-agreed arrangements under EU/IMF programme. This assistance programme already defines a set of targets for the banks in question, including quantitative objectives for the Core Tier 1 ratio, which are being monitored on a regular basis. The existing backstop facility (30 bn Euros), exceeds the results of the EBA capital exercise for Greek banks.
(4) As an EFTA state of the EEA, any requirement and supervisory action pertaining to capital needs in Norwegian banks is within the competence of Norwegian authorities

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jfichthorn's picture

Seems hard to believe 106 Bln Eur is the funding gap when Dexia alone needs 100...

Bunga Bunga's picture

dial 9% CT1 and 60% greeek haircut:


It's closer to 240 Billion Euro.

The4thStooge's picture

Yeah but plenty of algos will fall for it.

jcaz's picture

France is trying to claim only $8.8B???

What- PER BANK???


machineh's picture

Maybe the units are supposed to be 'ounces of gold,' not euros or dollars.

Buck Johnson's picture

If that was the case, they wouldn't be so gungho in trying to bailout Greece.

bankonzhongguo's picture

Ah ha!

Give'em the "bank capital" first, then ask for the bailouts.

Let the banks close their doors.

We will be that much more better off.


YesWeKahn's picture

This does look like a good news just like the first two stress tests. In the end, the stress tests are designed to boost investor confidence. I am an invesitor, I really feel confident buying french banks.

Bansters-in-my- feces's picture

"Mister can ya spare a dime" comes to mind.

HedgeAccordingly's picture

How many short squeezes can you fit into 11 days? about 6 http://hedge.ly/rRXRxs

glepo's picture

Usually hiding of losses by UK/French/German banks


Irish66's picture

This little chart kicked the can till December

pauhana's picture

How much longer will the bond market (the only sane judges of what is really going on) put up with the charade that is stock market?  I keep waiting for the spreads on Euro debt to totally blow out but they don't. Why?  It can't be this endless Greek drama. 

Iam Rich's picture

Funny how E$140B shortfall would have been viewed with SHOCK even a year ago.  Now it would be a relief that that is all that's needed.

chump666's picture

EU is finished.

disabledvet's picture

still seems like someone is out a trillion "over there." "the short squeeze in treasuries has been monumental with the yield on the 10 year hitting an extraordinary 1.75%. then they cry uncle and cover their positions allowing yields to approach a more rational 2.25%." it's just a story but it has the ring of truth does it not? who honestly has been anything other than uber-bearish on treasuries? i say "the animal spirits crowd" couldn't help it and has been shorting this space massively only to be suddenly staring trading losses of gargantuan proportions in a space where you really do have pay that back.

Coldfire's picture

Suppose you were a regulator. And suppose you were an idiot. But I repeat myself...

Blegoo's picture

The fourth... THE FOURTH TIME!

(it's a charm... as in The Fourth Reich)

The "Festung Europa" ... coming soon.

Quantum Nucleonics's picture

Stop it Tyler!  Didn't you get the memo.  Europe is fixed, just need the lawyers to hash out the details.  Climb aboard the mo-mo train.  AMZN, NFLX, AAPL, FSLR are on sale.  Pick them up before the train leaves the station!!!

slewie the pi-rat's picture

ok, troops, listen up!

we're going to jump somewhere into the EU; that's all i can tell you, right now

this is called operation: restore confidence in the banking sector.  and, since everything about it is conditional, we shall call it

operation RE-CON-BS-CON

we remain on standby alert and will move out smartly when the fiat flies!


any questions, BiCheZ? 

Amish Hacker's picture

"the number of idiots who will fall for this "third time is the charm" farce can be counted on one finger."

You don't have to tell us, Tyler, we can guess which finger.