According to the rating agency, Standard & Poor’s, 50 biggest European bank need about 110 billion euros to make sure that the funds of their shareholders are viable enough to sus-tain their credit their own credit rankings. S&P suggested that those banks needed to in-crease their ratios of shareholder funds to risks by either keeping part of their profits or by reducing balance sheets. The agency also pointed out the fact that Europe’s banking system is still marked by “crisis features” mainly due to the situation in Southern Europe and Ireland.
S&P also added that the shortfall of the funds at EU banks was almost 60 percent of a total of 185 billion euro for all banks that obtain credit rankings from them. Moreover, in the first two quarters of 2013, the same 50 banks decreased their balance sheets by about 1 trillion euro, which reduced the shortfall by almost 34 million euro based on their estimations. Yet, capital generation and positions relative to regulatory standards diverge, and the quality of capital held by the 50 banks varies widely among them.
The decline in shortfall for EU banks has been caused to a great extent by EU’s most problematic states. Only five countries – Greece, Italy, Spain, Ireland, France, and Portugal – contributed almost 40 percent to the decline. The agency commented that it hopes the so-called stress tests, which are to be implemented in the upcoming months, will help banks reduce their balance sheets and increase shareholder capital. The auditing company, PricewaterhouseCoopers, forecasts that EU banks will need additional 280 billion euro of fresh capital in 2014 under EU’s new regulatory requirements and stress tests.
