Brussels retains faith in EU banks after stress test

Brussels on Monday said the European Union (EU)'s banks showed increasing resilience in a stress test.

The European banking stress test result confirmed that "overall banks are increasing resilient," said Annika Breidthardt, a spokesperson for the European Commission, at a regular press briefing.

Commenting that the stress test was "a well-designed exercise," the spokesperson told reporters that "banks now obviously move to a more steady setting."

The remarks came after the European Banking Authority published the result of this year's stress test on 51 EU banks Friday, showing most banks survived the health check as they could be prepared for a very adverse economic situation.

Italy's Monte dei Paschi, the world's oldest bank, stood as the only of 51 banks that would wipe out its capital in a hypothetical scenario, suggesting large fund was needed to averse risk.

The Commission welcomed a plan announced by Monte dei Paschi earlier to sell its entire portfolio of bad loans and carry out a capital increase of up to 5 billion euros (about 5.6 billion U.S. dollars).

"We take note of the bank's announcement that it plans to launch a private capital raising exercise, such process is led by supervisory authorities and by the bank's concern," said Breidthardt.

"It is fully in line with EU rules, and any additional capital need should in the first place be raised from the market or from other private sources," she added.

The stress test faced some criticism though as some people questioned the scope of the test, arguing the 51 banks failed to show a whole picture of EU's banking system.

The Commission defended that it "attaches great importance to the stress tests as a regular mean of evaluating the health of EU bank system and of being the confidence in the solid financial system."

"We see stress test as an important and regular part of supervisory toolbox, and they are widely also used in other jurisdiction such as in the U.S.," said the spokesperson.

Investors, however, saw the test result in a quite different way and reacted negatively with the Stoxx Europe 600 Index decreasing and shares of banks dropping on Monday. Endit