This stressing assessment of banks just about passes the credibility test

Europe’s landmark assessment of its banks just about scrapes the credibility test.

The analysis undertaken by the ECB and the European Banking Authority has failed just enough lenders to keep the clean-up project moving. Unfortunately, that does not guarantee a return of investor confidence to the sector, nor a sudden switch by banks from deleveraging to lending.

The headlines are a €25bn capital hole, with 24 lenders failing to achieve a 5.5% core tier one ratio after the European Banking Authority’s “adverse” economic scenario and another failing the ECB’s so-called Asset Quality Review. This is less stressful than it appears. The figures are based on banks’ December balance sheets and don’t include capital raised since.