The financial entities of the European Union would lose an average of 4.2 points of their capital at the end of 2020 if the adverse scenario designed by the European Banking Authority (EBA) to make your stress tests. There are countries, however, in which the capital erosion of their entities It would be noticeably superior to the rest. Specifically, United Kingdom, Ireland and Germany. The four British banks that have undergone these tests, RBS, Lloyd's, HSBC and Barclays, would see their average capital reduced by 6.1 points. The two Irish banks subject to the tests would see their capital reduced by an average of 5.3 points in 2020. And in the eight German entities, the decline would be 5.27 points.
In all three cases, theoretical capital losses are strikingly higher than those of Spain, for example, that would suffer a mean decrease of 2.17. The Spanish banks, well, are not those who have more capital at the point of departure or those who would have more to produce a crisis, but they are the least wear would suffer in a recession, along with the Norwegians and Poles.
The 48 banks submitted to the tests – the toughest tests carried out by the EBA and aggravated by the new accounting criterion – have passed the test. "The results of the stress tests show that the entities' efforts to increase their base capital in recent years have helped to strengthen their resilience and their ability to withstand the serious impacts designed in the 2018 fiscal year," said the director of the company. Economic Analysis and Statistics of the EBA, Mario Quagliariello. In the case of a deep crisis, at least 25 banks that end up with less than 10.5% of the highest quality capital, among them the four Spanish ones, would commit to restrict the distribution of dividends or bonuses to their executives to no more eroding their capital, unless they achieved a new cushion of capital in the market.
The EBA avoids pointing out concrete causes that help explain the diversity in the results of the different banks. It is in the guts of the report that some of them can be detected. And as regards the German or English entities, it is evident that the exposure risk they have incurred in markets outside the European one has influenced. Other data are relevant. Even in the adverse scenario drawn by the EBA, the best managed and most efficient banks are able to compensate with their profits a large part of the losses derived from the bad loans. It happens in the case of BBVA, CaixaBank and Santander. Not so much in Sabadell, that at the end of the period it would register accumulated losses.
However, in the case of British banks this compensation does not occur in the adverse scenario. Only in the case of Lloyd's the profits partially balance the hypothetical bad results, and even then they are three percentage points below. Barclays reflects a flat, almost non-existent, balance of benefits. Worse is the situation of German banks, in which the estimates collected by the EBA show an almost complete disappearance of profits.
Finally, the adverse scenario drawn throughout Europe (loss in three years of 2.7% of GDP or increase in unemployment figures of up to four points) is then redrawn in a more specific way for each country. In the case of Spain, for example, given its current economic trajectory, the hypothetical decrease calculated by the EBA is barely 0.8% of GDP. Germany or the United Kingdom, however, face a fall scenario of 3.3%. Nobody in the EBA dares to link the Brexit with these results, but given the current situation of uncertainty in the United Kingdom and its poor recent growth figures, the conclusion is obvious.
Despite all the alarms unleashed in the previous days, given the degree of confrontation between the Government of Italy and the EU on account of its budget project, which has put the country in the spotlight and triggered its risk premium, Italian banks are not among the worst unemployed. That considering the high level of public debt of their own government that they have in their accounts. The loss of capital after the adverse period of three years would be of 3.67 points, although it is true that the entities with more problems, such as Monte dei Paschi, were not included in the stress tests.