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BANKING
ning recapitalization of 5 billion Euros, as well as today is how to redesign their business models and
a transfer of the entire portfolio of bad credits in deliver appropriate return to the investors. The
a special purpose vehicle (SPV). The other banks, ECB in the past period already announced a pro-
covered by the test, have a SET 1 indicator of more cess of an extensive debate with banks about the
than 6% in the negative scenario. The banks whose way banks should redesign their business models
SET 1 indicator is below the average of 9.4% after in order to provide sustainable profitability in the
the test, are located in Austria, Ireland, Italy, Spain, long run.
in the United Kingdom and in Germany.
The test shall be followed by a period where the
It is obvious that in the last test there are specific ECB together with the natural regulators shall dis-
elements that affect its credibility. This primarily cuss on the test results with each bank individu-
arises from the reduced scope of the banks covered ally and will trace the future activities related to
by the test, and particularly from the exclusion of the capital plans which should provide their ap-
some banks from the most vulnerable peripheral propriate capitalization. On the basis of these as-
economies. Still its results provide a certain repre- sessments, it should be expected that the super-
sentation of the direction of movement of banks in visors from certain banks will request changes in
Europe. It is evident that the few tests and compre- the current long-term capital plans of the banks,
hensive overviews of the banks’ portfolios, which increasing the amount of the planned capital, here
resulted in a series of recapitalizations, significant- maybe including measures such as prohibition for
ly improved the stability of the European Banks. payment of dividend. All of this for certain banks
The challenge that the banks in Europe face today would probably create additional pressure to more
is low profitability. It is no doubt that the environ- intensively continue the recapitalization process
ment of low interest rates will continue in the fu- and to resolve the poor portfolios in their balance
ture. Therefrom, the basic problem for the banks sheets.
