The European Central Bank’s (ECB) comprehensive assessment, composed of an asset quality review (AQR) followed by a stress test, disclosed shortfalls of €24.6bn in eurozone bank capital based on end-2013 results, of which €18.6bn has already been covered by capital actions taken during 2014. Italian banks had the largest gap to fill, with four failing the test and Monte dei Paschi showing the heaviest single shortfall at €2.1bn even after capital-raising measures in 2014.
The challenge for the banks that failed will be to prove to investors that they have a viable business model worthy of fresh capital commitment. And for all eurozone banks, the advent of a single supervisory mechanism (SSM) housed in the ECB in Frankfurt could bring profound changes to their relationship with their supervisors, which will alter the way the banks are managed. The SSM assumed full control of eurozone banking supervision from November 4, 2014.
