The European Central Bank’s landmark review of euro zone banks will have to ask lenders to raise an additional €51 billion to be credible with markets, a Goldman Sachs survey of large institutional investors has found.

The survey of 125 institutional investors from across the world also found that nine of the 130 banks being tested were expected to fail, with capital shortfalls most likely at Italian, German and Greek banks, according to a document circulated by Goldman Sachs last night.

The ECB is examining whether banks have properly recognised losses in a bid to finally draw a line under doubts about euro zone lenders' balance sheets before it becomes their supervisor on November 4th. Results are expected about October 17th, with three Irish banks – AIB, Bank of Ireland and Permanent TSB – among those being studied.

Producing a result that is in line with market expectations is key for the ECB, since previous rounds of EU bank tests in 2010 and 2011 were roundly discredited for capital demands and failure rates that were far less than what investors deemed reasonable.

“The ECB is clearly perceived to have handled the process well thus far, resulting in an increase in credibility assigned to the exercise,” Goldman’s report noted, pointing out that 89 per cent of investors expect the tests to be credible, up from 70 per cent in a previous Goldman survey.

Capital raised

The €51 billion investors say is needed takes account of capital that banks have already raised, including €47 billion since October. The 10 banks seen as most likely to fail include six that have already raised capital.

Greek and Italian banks are seen as most likely to fail, according to the survey. Italy’s Monte dei Paschi, seen by investors having the highest risk of failure, declined to comment as did Banca Popolare di Milano, the sixth most likely to fail, and Banco Popolare, the fourth most likely to fail.

- (Reuters)