FRANKFURT, Germany (AP) – The European Central Bank says 13 of Europe’s 130 biggest banks have flunked an in-depth review of their finances and must increase their capital buffers against losses by 10 billion euros ($12.5 billion).
The ECB said 25 banks in all were found to need stronger buffers – but that 12 have already made up their shortfall during the months in which the ECB was carrying out its review. The remaining 13 now have two weeks to tell the ECB how they plan to increase their capital buffers.
The ECB checked the worth of banks’ holdings and subjected the banks to a stress test that simulates how their finances would fare in an economic downturn.
The exercise is aimed at strengthening the banking system so lenders can provide more credit to companies, boosting the weak European economy. The economy has been plagued both by banks’ unwillingness to lend at affordable rates and by weak demand from companies that see no reason to risk borrowing.
ECB Vice President Vitor Constancio said the stress test and asset check were “quite strict” and that “the results guarantee that going forward the economic recovery will not be hampered by credit supply restrictions.”