ALLIED IRISH Banks (AIB), Bank of Ireland and possibly some of the country’s smaller lenders will be subjected to further stress tests after Europe’s financial regulation overseer extended stress tests to about 100 institutions from 25.
The Committee of European Banking Supervisors (CEBS) has expanded the stress testing of the wider European system to include half of each country’s banking industry by assets.
The Financial Regulator expects to carry out stress tests on the country’s main banks, which will be AIB and Bank of Ireland, and possibly Irish Life Permanent and the two building societies EBS and Irish Nationwide.
The regulator has already stress-tested AIB and Bank of Ireland under its prudential capital assessment review, which led to the Government’s large-scale recapitalisation announcement last March. The review involved scrutiny of the banks’ balance sheets assessing potential loan losses under a worst-case scenario.
The regulator has said that sovereign risks are being tested under the CEBS-instigated review, although these have already been assessed by the regulator. CEBS and the regulator will disclose the results of the stress tests during the second half of this month.
The Europe-wide bank stress tests following similar reviews in the US and Britain in 2009. CEBS, which covers banking supervisors in the 27 EU countries, will collect data from the regulators on capital levels and non-performing loans and assess the impact on capital from further rises in bad loans.
Regulators carried out stress tests on the 25 biggest European banks in a first round of tests that started in March. The wider group of 100 will include German and Spanish regional banks.
The Irish regulator demanded that Bank of Ireland raise €2.66 billion in extra capital and AIB €7.4 billion after carrying out capital stress tests on them this year. Bank of Ireland has already raised €3.5 billion in fresh capital, while AIB has started a process to sell key businesses to help generate some of the capital required.
Irish Life Permanent has yet to be subjected to the capital assessment review by the regulator, though this is expected to begin within weeks. The company has said it expects to have to raise up to €900 million to meet the regulator’s new capital ratios, which includes €700 million to be raised from shareholders to meet loan losses at the group’s struggling banking unit Permanent TSB.
