RBS ranked third worst in European banking stress tests

“While the results of the exercise will constitute an input to the 2016 supervisory review process, Barclays’ capital requirements to cover against stress risks will primarily be informed by the Bank of England stress test, which is due to be published later this year”.

The EBA put the bank’s balance sheets under a severe economic stress which included a 7.1 drop in gross domestic product, a drop-off in interest income and a collapse in the real estate market.

In a statement Monday morning, the bank said that the EBA results “are point in time projections based on prescribed stress assumptions and should not be treated as indicative of the future financial performance of AIB”. “There remains work to do, which supervisors will undertake”.

You can see a full summary of the European Banking Authority’s findings here.

Unlike a previous stress test in 2014, there’s no pass or fail grade for the banks, making the data trickier to interpret.

Italy’s Monte dei Paschi fell 16 percent, leading bank losers in Europe and also ending at its lowest point ever. Taxpayer money can now only be used after bank creditors, including bondholders, take a loss first – a measure to make sure bank rescues don’t overwhelm state finances.

The detailed stress-test results are not meant primarily to serve as a guide for banking-sector investors.

Although the tests showed the beleaguered Monte dei Paschi (BMDPF) imploding during the EBA’s so-called adverse scenario, it was two Irish banks that ranked as the most exposed to an economic meltdown when Monte dei Paschi is set aside.

Just ahead of the release Monte Paschi announced that it had secured an underwriting agreement for its plan involving the sale of EUR9.2bn in bad loans and a EUR5bn capital increase.

Some analysts said they had expected Barclays to meet a higher capital ratio threshold of 7.5%.

“We think this transaction can give an upside to shareholders”, he said.

Spain’s Banco Popular, Bank of Ireland and Austria’s Raiffeisen all ended the test below this level at 6.62%, 6.15%, and 6.12%, respectively. It stated the EBA tests had not consisted of the 2.5 billion euro share problem it finished in Might to tidy up poisonous retail assets.

Banks are adapting to meet the challenges although Staley argues for more work on that front, telling CNBC “the banks need to get into a better position of profitability”.

“We estimate there is still approximately a trillion euros of non-performing loans clogging banks’ balance sheets across Europe”, said Edward Chan, a banking partner at law firm Linklaters.

Meanwhile the EBA found that in a similar adverse scenario, Bank of Ireland’s ratio would be 6.1 per cent in 2018.

“Even under the adverse conditions of the EBA stress scenario, the stability of the Bank would be guaranteed”, Mr Chromik said. The biggest impact was from credit or losses on loans, amounting to nearly 350 billion euros across all the banks checked.