Jon Ihle on the Stress Tests

It was great to see Jon Ihle, one of Ireland’s best financial journalists, writing in the Sunday Business Post yesterday.    Missing Jon’s weekly insights was one reason to mourn the Tribune’s demise.  

Jon has an informative piece on the coming bank stress tests: see here. 

We are clearly being prepared for some additional bad news on the bank losses, and maybe for once we will be surprised on the downside.   In interpreting the additional capital needs, however, it will be important to distinguish between estimates of additional losses and the new capital required to meet higher capital ratio targets.   

The EU/IMF terms require A baseline capital level of 12 per cent for all banks – far above the normal 8 per cent regulatory level at which Anglo and INBS are being allowed to operate.

But if the stress level is as high as 10.5 per cent – meaning capital could not fall below that point even under dire conditions – bankers expect the baseline level could go as high as 16 per cent, imposing huge recapitalisation costs.

AIB and BoI in EU Stress Test

AIB and Bank of Ireland have been included as two of the 91 banks chosen for the stress test being conducted by the Committee of European Banking Supervisors. They don’t do too well in JP Morgan’s version of the test, reported here. Results will be released on 23 July.