The European Banking Authority (EBA) has published its latest review into the financial health of the banks in the European Union. The "stress test" aims to determine the resilience of the banks to further economic shocks – in other words, to see whether or not they could survive another financial crisis – and ultimately looks to repair the banking sector and restore confidence in financial institutions.
Well, the UK has passed with flying colours, with all four banking groups subject to the test (Royal Bank of Scotland Group plc, HSBC Holdings plc, Barclays plc and Lloyds Banking Group plc) meeting the objectives, meaning that they have sufficient capital to survive any shocks. Essentially, this means that the banks have been able to raise suitable funds and strengthen their capital positions – and it means that UK banking customers needn't worry too much about what would happen to their cash in the event of another downturn.
However, banks in other parts of the EU haven't been quite so lucky. Out of the 123 banks subject to review, 24 failed the stress test – and 14 still need to do more to balance the books. The review was based on the banks' balance sheet at the end of 2013, and so far 10 of the troubled banks identified have taken remedial action to bolster their finances. However, 14 need to take further measures to improve their capital position, and they have nine months to do so – or they could face being shut down.
The results of the test show that, for much of the EU, the banking sector is not only recovering, but is strong enough to weather any future financial storms. The majority of banks have met the criteria and are in better financial shape than they have been in years, but for the 14 banks in trouble – including four Italian banks, two Greek, two Slovenian, and one bank apiece in Austria, Belgium, Cyprus, Portugal and the Republic of Ireland – there's still work to be done. However, this shouldn't pose too much cause for concern for the UK, with all banks safely passing the health check, which should put the minds of UK customers at rest.
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