Italian Central Banker Says Banks Ready for Stress Tests

Italy’s banks are “quite well-prepared” for the upcoming European stress tests, the second-in-command at the country’s central bank told CNBC—despite recent investor and rating agency concerns.

“Our perception is they are quite prepared. We will see what the result of the exercise will be, of course. Nobody knows,” Salvatore Rossi, the senior deputy governor at Banca d’Italia, told CNBC in London.

After being caught up in the center of the European financial crisis, when the level and quality of their capital reserves severely shook the confidence in the region’s financial sector, lenders face a wave of tests this year. The European Central Bank (ECB) is working in conjunction with the European Banking Authority to examine banks’ ability to withstand another economic shock. A sample of 124 banks deemed “systemically important” will be tested, and results are expected in October.

One requirement is that banks meet a threshold of 8 percent for “tier one” common capital—a measure of banks’ core equity capital—for a “baseline scenario” and 5.5 percent for an “adverse scenario”.

Rossi said that Italian banks—the biggest of which are Unicredit and Intesa Sanpaolo in terms of domestic loan portfolio—had worked hard to improve their balance sheets in the run-up to the tests.

“They have increased, by quite a lot, their provisions against distressed assets…and then they have done a number of capital increases this year,” he said.

via CNBC

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