The European Central Bank’s stress tests on banks have failed 25 of such institutions, although no French, German or Spanish organisations are required to come up with more capital.

The European Central Bank’s stress tests on banks have failed 25 of such institutions, although no French, German or Spanish organisations are required to come up with more capital.

The ECB’s “comprehensive assessment”, which analysts have been anticipating for weeks, showed a combined capital shortfall of €25 billion ($31.7 billion) detected at 25 participant banks; the ECB said banks’ asset values need to be adjusted by €48 billion, €37 billion of which did not generate capital shortfall.

An additional €136 billion was found in non-performing exposures while the ECB said that an “adverse stress scenario” – such as a sharp market fall - would deplete banks’ capital by €263 billion, reducing median CET1 ratio by 4 percentage points from 12.4 per cent to 8.3 per cent.

The test was carried out on 130 of the largest banks in the eurozone.

Around early-afternoon today, most European equity indices were down slightly on the day. Deutsche Bank, Germany's largest bank and not on the list of "failed" banks under the stress tests, was down slightly.

“Since the announcement of the exercise in July 2013, the largest 30 participating banks have undertaken various measures, including capital raising to an amount of €60 billion, to strengthen their balance sheets by a total of more than €200 billion,” the ECB said in its statement, issued yesterday when the markets were closed. “These frontloaded measures are part of the overall successful outcome of the exercise. Some of the measures taken in 2013 reduced the insufficiencies detected by the comprehensive assessment; some measures adopted in 2014 may count toward the coverage of the capital shortfall,” the statement continued.

Banks that failed the tests included Banca Monte dei Paschi di Siena; National Bank of Greece; Banca Carige (Italy); Bank of Cyprus Public Company; Österreichische Volksbanken (Austria); Banco Comercial Portugês; Dexia NV, Banco Popolare – Societa Cooperativa, and AXA Bank Europe.

Investors will be cheered by the stress test outcomes, argued analysts at Berenberg, the German-headquartered banking group. There were few surprises in the overall package, it said. However, it warned that the adjustments identified and capital shortfalls seen were not credible at the end of a multi-decade debt cycle. It also stated there were few clear steps from the European authorities about how banks with capital needs can sort out their problems.