European banking giants Santander and Deutsche Bank have failed a US “stress test” designed to assess whether banks would be able to withstand a future financial crisis.
The results were part of the fifth annual Comprehensive Capital Analysis and Review (CCAR) by the US Federal Reserve, which applies to the 31 lenders operating in the US with more than $50 billion (€46 billion) in assets.
The Spanish and German banks were the only two to fail the annual assessment, with the US finding fault with their financial plans, but acknowledging that they hold sufficient cash reserves. In previous years, banks which failed the tests have been forced to suspend dividend payments to shareholders.
Meanwhile, all US domestic banks taking part in the tests passed the exercise for the first time since 2009.
The tests attempted to simulate whether banks would be able to withstand future financial crises, in order to avoid a repeat of the multi-billion euro taxpayer-funded bailouts of the sector following the 2008 and 2009 events.
The review demonstrated if banks would be able to “continue lending to businesses and households even during a period of serious financial stress,” said federal reserve chief Daniel K. Tarullo in a statement on Wednesday (11 March).
Banks on both sides of the Atlantic have been required to beef up the amount of high quality capital they hold to make them more resilient.
The US Federal Reserve Board said US banks had boosted their core capital from 5.5 percent in the first quarter of 2009 to 12.5 percent by the end of 2014.
In contrast, the EU’s 30 largest banks now hold assets worth 11.5 percent of their total balance sheets, a combined €200 billion more than in 2009.
Last week the EU’s banking watchdog announced that it would not conduct its next stress test of their books until 2016.
Instead, the European Banking Authority plans to conduct a “transparency exercise which will provide detailed data on EU banks’ balance sheets and portfolios” later this year.
In autumn last year, the European Banking Authority ran a test of European banks alongside an asset quality review by the European Central Bank of the eurozone’s main lenders.
In total, 130 of the bloc’s biggest lenders, together accounting for more than 80 percent of the EU’s total banking assets, were assessed by the two institutions.
A total of 24 banks were found to have capital shortfalls totalling €24.6 billion, 10 of which were able to raise the extra cash by the end of 2014.