14.10.2011

At least 50 out of 91 European banks may fail the next stress-testing with tighter parameters as compared to the ones which were used this July. Total deficit of bank capital required for recapitalization may reach 139 billion euro. Those are financial predictions by Goldman Sachs which were reported today by Reuters.

The report says that capital deficit may reach even 298 billion euro, if the criteria for successful passing the European Banking Authority’s (EBA) test will be at least 9% for Tier 1 capital adequacy. For example, if “9%” is the case, then Deutsche Bank will require 9 million dollars – told Reuters two informed, but unannounced sources. But if the EBA sets 7% as the minimum for Tier 1 capital, then Deutsche Bank will successfully pass the test, told the same two sources.

Analysts from Goldman Sachs noted that recapitalization of banks would not allow them to overcome neither the banking crisis, nor the sovereign debt crisis unless economic policy in European countries is reoriented towards stabilization of state debt. As long as we don’t have the notion of “risk-free assets”, which before the crisis used to include all European federal bonds, the banking sector won’t be able to get back to stability.

Recapitalization of banks to compensate losses from sovereign bonds on balances will help to recover some of private investors’ confidence, but only part of it. It would not be reasonable to assume that this alone is enough to face new shocks caused by some of the EU country’s default.