Most Spanish banks would fail proposed EU solvency rules

The European Banking Authority (EBA), the European Union's supervisor for the sector, is considering raising the minimum solvency level lenders require under scenarios of recession, a new demand that would cause most of the banks in Spain to fail the stress tests drawn up under such a premise.

Citing banking and regulatory sources, Reuters reported Tuesday that the EBA wants banks to have minimum Tier 1 core capital of seven percent under a recessionary scenario, up from the five percent that was used in stress tests conducted on 90 European banks in July, which were considered to have been insufficiently rigorous.

On that basis, 17 of the 24 banks subjected to the probe would require more capital. The recapitalization exercise for European banks would amount to around 100 billion euros, Reuters reported. "A significant number of banks are expected to fail the stress tests," Reuters quoted one source as saying. In the case of Spain, the number of failing banks will be reduced to 16 due to the merger of Banco Popular and Banco Pastor, one of the banks that failed in July.

Banks that would pass the test under the stiffer criteria include Santander, BBVA, Popular, Sabadell and Banca March. Bankia would fail the test.

If generic reserves particular to Spain and other forms of capital are accepted, eight Spanish lenders would need more capital.