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Bank fails EU stress test

The only German bank that would have failed a European Union stress test, Helaba, decided it would not accept a disputed method used for the review and published its own results separately on Friday.

Bank fails EU stress test
Photo: DPA

“Twelve German participants passed the stress test,” the central bank declared after the European Banking Authority (EBA) released its results in London.

A 13th German bank, the state-owned regional bank Helaba, was not mentioned in in the Bundesbank’s statement.

“Helaba decided against the publication of its result by the EBA,” the German Finance Ministry explained in a separate statement.

German officials have voiced support for Helaba in its dispute with the EBA, which centres on the definition of the core capital a bank must hold to be sure of withstanding exceptional shocks to the financial system.

A large part of Helaba’s core capital is comprised of what are known as ‘silent participations’ by the western German state of Hesse, which means it does not have voting rights commensurate with the number of shares it owns.

If these type holdings were included in the calculation of Helaba’s core ratios, it would have a core capital ratio of 6.8 percent, comfortably above the test’s threshold of 5.0 percent.

Without the ‘silent participations,’ which are worth €1.92 billion ($2.72 billion), Helaba’s core capital ratio falls to 3.9 percent.

German central bank vice president Sabine Lautenschlaeger told a press conference in Frankfurt that Helaba had the right to withhold publication of the tests using EBA critera since “the publication of test results was on a voluntary basis.”

The executive director of BaFin, the German financial markets watchdog, added that Helaba’s absence was “not a disaster,” although he allowed it was “regrettable.”

Helaba spokesman Wolfgang Kuss told news agency AFP: “Under the EBA conditions the bank failed, that is clear. From our point of view we were successful.”

He underscored results published on the bank’s website using the standard EBA template but the bank’s own calculation.

The line for core equity ratio showed that the “6.8 percent is our figure including silent participations,” Kuss said.

Two other regional banks, HSH Nordbank and Nord/LB, just squeaked by meanwhile.

Overall however, “in Germany, no adjustment is necessary because shareholders in German banks that were tested had already taken steps to reinforce their capital, where that was necessary,” Finance Minister Wolfgang Schäuble said.

Other German banks tested included number one Deutsche Bank, Commerzbank and state-owned Hypo Real Estate, which had flunked an easier test last year.

“Undoubtedly the stress tests have been useful in singling out a few particularly weak banks” across the European Union, said Marie Diron, senior economist at Ernst & Young.

“But the adverse scenario considered by the new European Banking Authority in this years tests still did not include the impact of a formal debt default by a European government, which is the single greatest risk facing the European banking sector at present,” she added.

“Another shortcoming in the design of the stress tests is that they are performed on a bank-by-bank basis, overlooking the damaging feedback loops that can develop between individual banks, as well as the broader economy, during times of financial stress,” Diron said.

AFP/mry

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COVID-19

Court turns down AfD-led challenge to Germany’s spending in pandemic

The German Constitutional Court rejected challenges Tuesday to Berlin's participation in the European Union's coronavirus recovery fund, but expressed some reservations about the massive package.

Court turns down AfD-led challenge to Germany's spending in pandemic

Germany last year ratified the €750-billion ($790-billion) fund, which offers loans and grants to EU countries hit hardest by the pandemic.

The court in Karlsruhe ruled on two challenges, one submitted by a former founder of the far-right AfD party, and the other by a businessman.

They argued the fund could ultimately lead to Germany, Europe’s biggest economy, having to take on the debts of other EU member states on a permanent basis.

But the Constitutional Court judges ruled the EU measure does not violate Germany’s Basic Law, which forbids the government from sharing other countries’ debts.

READ ALSO: Germany plans return to debt-limit rules in 2023

The judgement noted the government had stressed that the plan was “intended to be a one-time instrument in reaction to an unprecedented crisis”.

It also noted that the German parliament retains “sufficient influence in the decision-making process as to how the funds provided will be used”.

The judges, who ruled six to one against the challenges, did however express some reservations.

They questioned whether paying out such a large amount over the planned period – until 2026 – could really be considered “an exceptional measure” to fight the pandemic.

At least 37 percent of the funds are aimed at achieving climate targets, the judges said, noting it was hard to see a link between combating global warming and the pandemic.

READ ALSO: Germany to fast-track disputed €200 billion energy fund

They also warned against any permanent mechanism that could lead to EU members taking on joint liability over the long term.

Berenberg Bank economist Holger Schmieding said the ruling had “raised serious doubts whether the joint issuance to finance the fund is in line with” EU treaties.

“The German court — once again — emphasised German limits for EU fiscal integration,” he said.

The court had already thrown out a legal challenge, in April 2021, that had initially stopped Berlin from ratifying the financial package.

Along with French President Emmanuel Macron, then chancellor Angela Merkel sketched out the fund in 2020, which eventually was agreed by the EU’s 27 members in December.

The first funds were disbursed in summer 2021, with the most given to Italy and Spain, both hit hard by the pandemic.

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