Reuters: Up to 15 EU banks to fail stress test

28 June 2011

Up to one in six European banks is set to fail an EU-wide financial health check, according to eurozone sources close to the stress-testing, as officials scramble to set up backstops for those at risk.

The result, which the European Central Bank and others hope will persuade investors the European Union was finally coming clean about the extent of banks' problems, will pressure reluctant states to prop up lenders that cannot raise money.

Eurozone sources said the European Banking Authority was set to announce within weeks that 10-15 of 91 banks being scrutinised had failed, with casualties expected in Germany, Greece, Portugal and Spain.

The checks will provide the first picture of the health of EU banks since a previous round a year ago was deemed too lax. In that round, Irish banks were all given a clean bill of health months before their difficulties drove the country to seek an international bailout.

Although the EBA is insisting on the publication of each bank's sovereign debt holdings by maturity as well as size, it is ultimately the number of banks which fail that will establish the credibility of the checks. "If it was the same as last time when seven failed, next to nothing, then no one would believe it", said one source. "But you cannot fail 50, or the banking system would collapse."

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