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Number of eurozone banks falling short of ECB capital demands increases

By Philip Smith

Six banks had been told to shore up balance sheets or face consequences and two are yet to do so

Six eurozone banks, which have fallen below the European Central Bank’s capital requirements, had been told to take action to fix the shortfalls. If they fail to shore up their balance sheets, the unnamed banks will face tighter controls.

The announcement, made by Andrea Enria, chair of the supervisory board of the ECB underlines the fragility of the system, as it has increased from only one bank last year. However, Enria told a news conference in Frankfurt that in four cases, that shortfall had already been remedied by the end of 2019.

"The two remaining banks have been requested to take remedial actions within a well-defined timeline,” he was reported as saying by Reuters.

The sudden jump in the number of banks failing the ECB's annual review of has been blamed on ultra-low interest rates and high legacy costs from their high street branches. There have also been scandals related to money laundering.

The ECB has left both mandatory capital requirements and non-binding guidance unchanged at an average of 2.1 per cent and 1.5 per cent, respectively.

Andrea Enria, the ECB's top supervisor, said that he was "broadly satisfied" with the results but said there were concerns over banks' business models, internal governance and operational risks.

This year, for the first time, the ECB published – with the banks’ consent - its capital requirement for each. Only a few were missing because they refused consent or have yet to be examined in full. One notable absentee was the leasing arm of Volkswagen.

FURTHER READING: ECB holds policy as it launches strategic review

FURTHER READING: EU looks to tighten powers to curb money laundering

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