Should we worry that more banks will go bust?

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All the headlines in the last few weeks about financial crisis have been focused on the sovereign debt issues relating to borrowing by euro zone nations such Greece, Italy, Portugal and Spain.

But how strong are the banks across the European Union which could be at risk if financial conditions deteriorate further? The picture is not as healthy as it should be according the results of the Bank Stress Tests published by the European Banking Authority in mid-July.

Of 90 banks reviewed, eight fell below the 5% Core Tier 1 capital threshold and a further 16 banks only just passed with ratings of between 5% and 6%. Thus more than a third of the banks could be considered at risk on a 6% Core Tier 1 measure.

The names of the failing banks have not been published, but the FSA, commenting on the UK position stated: “The results support our own stress tests and we are pleased that the major UK banks have capital above the minimum required in the test…

”Does this mean that there are UK banks, that are not ‘major banks,’ tha thave failed the EBA stress test? We can’t know for sure but we would be more confident if the FSA had been able to state that all UK banks have capital above the minimum.

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