Goldman Sachs predicts ten banks will fail EU stress tests

23 July 2010

A new survey has forecast that ten financial institutions will fail the European Union’s banking stress tests.

The research, conducted by investment bank Goldman Sachs, predicted that financial institutions in Greece, Germany and Spain will have to raise the most capital after the findings are released.

According to the study, the source of these funds is expected to be a roughly even split between public and private sectors.

The stress tests were carried out as part of a bid to increase confidence in the financial sector and its supposed stability.

Banks who fail are expected to have scored less than a six per cent tier one ratio and will need to recapitalise, reports have claimed.

Commenting on the possible results, Leigh Bates, head of Financial Services Practice at SAS, said that although recent comment on
the tests has focussed on the criteria used in the analysis, the main purpose may have been overlooked.

“While the tests will enable regulators to determine necessary capital ratios, the longer term aim is surely to help ‘futureproof’ the
industry. Ultimately, banks need to see for themselves what changes are required in terms of risk management procedure so that they can be confident in their own ability to deal with whatever events the future may hold.”

The study undertaken by Goldman Sachs questioned 376 financial executives with a knowledge of the sector within Europe.

By Jim Ottewill

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