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Six euro zone banks fall short of ECB capital demands

Six euro zone banks have fallen short of the European Central Bank’s capital demands and have been told to shore up their balance sheets or face tighter controls. 

The ECB’s annual review of banks comes as many lenders are struggling to make money in an environment of ultra-low interest rates.

They are also facing high legacy costs from their bricks-and-mortar branches and amid a string of scandals related to money laundering. 

The euro zone’s top banking supervisors kept both their mandatory capital requirements and their “guidance”, which is not binding, unchanged from the previous year, at an average 2.1% and 1.5%, respectively. 

Yet six banks fell short of the capital guidance, compared to just one firm last year, and will have to raise their Core Equity Tier 1 ratio (CET1) if they are to avoid new curbs from the supervisor. 

“Six out of the 109 banks that participated in the (evaluation) showed CET1 levels below the Pillar 2 guidance,” the ECB said. 

“For those banks which have not taken satisfactory measures in the last quarter of 2019, remedial actions have been requested within a precise timeline,” it added. 

The ECB’s top supervisor Andrea Enria said he was “broadly satisfied” with the results but emphasised concerns about banks’ business models, internal governance and operational risks.

This was probably a reference to recent money-laundering cases from Latvia to Malta.

The ECB published for the first time a list detailing its capital requirement for each bank, except for a handful that either refused their consent or have yet to be examined in full.

Volkswagen’s leasing arm was a notable absent from that list, along with the euro zone subsidiaries of some investment banks that have only recently left London due to Brexit, among others.

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