Test Stress

Banks in the Balance

Clambering back. An urban climber hanging in front of the logo of German global banking and financial services company Commerzbank in Frankfurt Main, Germany. Source: dpa.
An urban climber hanging in front of the logo of Commerzbank in Frankfurt Main, Germany.
  • Why it matters

    Why it matters

    European banks are awaiting the results of the ECB stress tests. German banks are in a strong position, Finance Minister Wolfgang Schäuble said.

  • Facts

    Facts

    • 21 German banks are affected by the ECB stress tests.
    • The ECB is to announce the resuts of its review in October.
    • The deadline for banks wanting to apply to Special Fund for Financial Market Stabilization has been extended to December 31, 2015.
  • Audio

    Audio

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The largest banks in the euro zone – around 120 of them – have gone through turbulent times, but they should see some clarity in October. That’s when the results of the stress test conducted by the European Central Bank (ECB) will shed light on whether the financial institutions have passed the checkup or need to raise new capital.

 

Share prices for Commerzbank and Deutsche Bank
Share prices for Commerzbank and Deutsche Bank

German Finance Minister Wolfgang Schäuble, a member of Chancellor Merkel’s center-right Christian Democratic Union (CDU), is optimistic about the chances for the 21 German banks that are affected by the stress test and that will fall under ECB supervision from November 4. There are currently no indications that any German banks could fail the test, Mr. Schäuble has told the German parliament, the Bundestag. Nevertheless, he added, preparations have been made for the worst case.

The Germans have already set up a fund, known as the Special Fund for Financial Market Stabilization, or Soffin, to pay for any bailouts the financial sector may need. It has now extended the deadline for banks wanting to apply for funding to December 31, 2015, after the results of the stress tests are known.

 

008 Deutsche Bank-01

 

The ECB assessment consists of an asset quality review and the stress tests, and the biggest uncertainty is in how the ECB will combine these results in what is referred to as a join-up, to come to a final verdict. Banks had frequently complained that the ECB had been combining faulty data sets in recent weeks, but most of these complaints have now  been resolved.

Banks had also raised concerns about an open-ended confidentiality agreement the ECB had wanted  them to sign.  The lenders feared that this type of gag order was incompatible with their statutory reporting requirements. Industry sources told Handelsblatt that ECB has now modified its stance, and the non-disclosure agreement will now apply only until the results of the stress tests are released.

Peter Drost and Frank M. Köhler both cover banks and finance for Handelsblatt. To contact the authors: drost@handelsblatt.com and köhler@handelsblatt.com

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