International Monetary Fund (IMF) said Friday that it welcomed the EU-wide stress test exercise carried out under the auspices of the European Bank Authority (EBA), but pressed for effective steps to address banking sector weaknesses.
The disclosure of the detailed information in line with the stress test results will allow market participants to form a considered view of the soundness of the banks participating in the test, Jose Vinals, financial counselor of the Washington-based IMF, said in a Friday statement.
"The outcome of the exercise reflects efforts made by individual institutions and national supervisory authorities to strengthen bank balance sheets, but more needs to be done," added Vinals, also director of the Monetary and Capital Markets Department of the IMF.
The IMF considers it important that national authorities have promptly committed to address the pockets of vulnerability detected through the stress test, and strongly advocates that the necessary measures are taken to address weaknesses not only in institutions that have "failed" the test, but also in those that have only narrowly passed it, said the IMF.
Eight out of 90 banks from 21 EU nations have failed the crucial stress test, the EBA said on Friday in a report.
The banks -- five from Spain, two from Greece and one from Austria -- fell below the capital threshold of five percent core tier 1 over two years' horizon, with an overall core tier 1 shortfall of 2.5 billion euros (about 3.53 billion U.S. dollars), said the EBA.
It also said that any banks hovering close to the 5 per cent figure, and which hold high levels of risky sovereign exposure, must have a plan in place to strengthen their capital position by 15 October this year. These plans must be fully implemented by 15 April 2012.
Remedial measures could include placing restrictions on dividends, deleveraging, issuing fresh capital or converting lower quality instruments into core tier one capital, it said.
German regulator BaFin remained surprisingly tight-lipped about the results of the test, having previously been heavily critical of the methods used by the EBA.
A month before the publication of the tests, the regulator's president Jochen Sanio had slammed the capital definition used as being "without legally defined competence, let alone legitimacy", when presenting the group's annual report.
He claimed this gave BaFin cause for concern as to the competency of the EBA.
Helaba had angrily withdrawn from the EBA for backtracking on its original approval on the use of silent participation.
This debt-equity hybrid is allowed by German regulators as a form of core tier one capital, with Helaba claiming that it is used for around half of its funding, meaning it would fail the test despite being in a solid capital position.
"The results of the bank stress test show that the German banks in the sample are sufficiently capitalised in the adverse scenario, and their capitalisation is also robust under these pessimistic assumptions," Bundesbank vice-president Sabine Lautenschläger said on Friday.
She refused to rap Helaba for its withdrawal, simply stating that the bank's data "will not be published by the EBA".
BaFin also claimed that the EU tests were much tougher than a US comprehensive capital analysis and review, conducted in March.
Meanwhile, the Spanish central bank argued that the results showed that "no Spanish bank" needs to further increase its capital - despite the fact that five of the eight failures came from banks in the country.
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