EU banking stress tests are good for Asia

The first comprehensive assessment of European banks, published recently, was generally positive, as many expected.

Only 16 banks out of 150 institutions failed to meet the minimum criteria of having 8 percent of risk-weighted assets matched by common equity tier-one capital, with an aggregate capital shortfall of 5 billion euros ($6.22 billion). Under more stringent scenarios, the shortfall increases to a maximum of 24.2 billion euros, spread between 25 entities. This is still a very modest amount, accounting for slightly more than 4 percent of total assets, especially since many banks have covered their capital shortfalls over the course of this year. At the time of writing, only 13 banks were still short of capital.

Another encouraging outcome of the stress tests was that banking systems that had to undergo serious restructuring since the worst of the eurozone crisis in 2011 and 2012 managed to pass. A good example of this is Spain. Two years ago the European Union had to bail out the country to help save its biggest banks. All have now passed the tests.