GERMANY - Government-owned Hypo Real Estate has failed a stress test by the Committee of European Banking Supervisors (CEBS).
It was the only German bank to fall short of the 6% tier 1 capital ratio when the most severe economic scenario was applied, although analysts predicted its failure.
Germany's regulator, Bafin, stressed that the bank would only require further capital injections should the hypothetical stress scenario actually arise, which is deemed to be unlikely.
Among other things, the EU stress scenarios assume a slowdown in euro-zone economic activity for 2010-11 by a cumulative 3 percentage points, with German economic activity to drop by as much as 3.3 percentage points.
The most severe stress scenario, which Hypo Real Estate failed, assumed a rise in risk premiums for government bonds.
Bafin added that the bank was already undergoing a restructuring process overseen by its full owner, the German government's Financial Market Stabilisation Fund, which will include the transfer of approximately €210bn in "risk positions", which was not taken into account during the stress test.
The average tier 1 capital ratio of the 14 participating German banks at end-2011 according to the first stress scenario was 8.9%, while the most severe scenario saw the figure drop to 8.5%.
Hypo Real Estate's corresponding results were 5.3% and 4.7%, respectively.
The aggregate tier 1 capital ratio across the full 91 European bank sample was 9.2%.
The CEBS said it would continue to undertake EU-wide stress tests on a periodic basis.
