FRANKFURT — The bulk of Europe’s biggest banks would be able to survive a financial crisis or severe economic downturn, the European Central Bank said on Sunday, concluding a yearlong audit of eurozone lenders that is potentially a turning point for the region’s battered economy.
The highly anticipated assessment of European banks was intended to remove a cloud of mistrust that has impeded lending in countries like Italy and Greece and has left the eurozone struggling to avoid lapsing back into recession for the third time since the global financial crisis began six years ago.
By exposing a relatively small number of sick banks — only 13 of the 130 big eurozone banks under review — the central bank could make it easier for healthier ones to raise money that they can lend to customers.
Analysts predicted that financial markets would react with relief on Monday to the news that there were no unpleasant revelations about Europe’s biggest banks. But some wondered whether the relatively sanguine results meant that the health exam was not tough enough, despite the central bank’s promises that the assessments would be rigorous.
The European Central Bank said that 13 banks in the eurozone — including four in Italy and two in Greece — showed shortfalls in their own money, or capital, after a review devised to uncover hidden problems and test their ability to withstand a sharp recession or other crisis. But no major European banks failed the central bank’s test.
Contrary to some forecasts, the stress-test results were not likely to force any banks to close. Those deemed having too little capital to protect against risk have two weeks to file plans for raising more, and will then have up to an additional nine months to meet the minimum threshold.
“The massive nature of the exercise deserves to be acknowledged,” Vítor Constâncio, the vice president of the E.C.B., said at a news conference Sunday. “The results are credible.”
The 13 banks that failed the stress test were among 25 that the central bank found had capital shortfalls through the end of 2013, which was the period under review. The total shortfall for those 25 banks was 25 billion euros, or about $31 billion. But a dozen of those banks have since then already raised capital or made other moves to bolster themselves.
“Generally speaking, the absolute number that needs to be raised is not large,” said Neil Williamson, co-head of credit research at Aberdeen Asset Management. “There are still plenty of question marks about some banks.”
The €25 billion capital shortfall was on the lower end of analysts’ estimates. However, the review also uncovered €136 billion in troubled loans that banks had not previously reported. Partly as a result, banks had overvalued their other holdings by €48 billion, the central bank said.
The review was intended to take the same sort of cold-eyed scrutiny to European banks that regulators in the United States gave to the books of American lenders several years ago in the wake of the financial crisis. Experts say that the American regulators, by forcing deficient banks to raise more money to buffer themselves against risk, helped the United States financial system and economy bounce back much faster than Europe’s has been able to do.
The assessment also comes as the European Central Bank is about to assume much greater powers for overseeing the biggest banks in the eurozone – more similar to the authority the Federal Reserve wields in the United States. Before taking on that oversight, the European Central Bank was intent on knowing the health of the banks it will regulate.
The biggest effects of the review may be felt in week and months to come, as investors, customers and potential business partners pore over the enormous amount of data that the E.C.B. made available about individual banks. Weaker lenders are likely to face pressure to improve their performance or seek merger partners.
There was immediate speculation that the bank with the largest capital deficit, Monte dei Paschi di Siena of Italy – the world’s oldest bank – would seek a buyer. The troubled bank, which has already received a government bailout and tapped investors several times for additional funds, was €2.1 billion short of the money it would need to survive a crisis, the E.C.B. said.
On Sunday, Monte dei Paschi di Siena said that its board of directors had hired UBS and Citigroup as financial advisers to help it define and implement a plan to raise capital and evaluate “all strategic alternatives.”
Greece’s banking system was also hit hard, with three banks found short of capital at the end of 2013. One, Piraeus Bank, has since raised enough capital to satisfy regulators. The other two are Eurobank, which must raise €1.76 billion, and National Bank of Greece, which must raise €930 million.
But the Greek central bank said on Sunday that because the European Central Bank review did not take into account various restructuring plans the banks have made since the end of 2013, Eurobank and National Bank of Greece were in better shape than those numbers would indicate.
Estimates of what the overall capital shortfall would be had varied widely, from tens of billions of euros to hundreds of billions. Many banks had already begun protectively shoring up their capital. Banks in the eurozone had increased their capital by about €200 billion since the summer of 2013, according to E.C.B. estimates.
Even banks that will not be required by the E.C.B. to raise capital may find themselves under market pressure to do so, especially those that the central bank found had been overly optimistic about the values of their holdings.
The fact that 25 banks had failed the initial test through the end of 2013 had been known since Friday, after a draft of the central bank’s report began circulating. But the size of the shortfall and the scope of overvalued assets were not disclosed until Sunday. Nor was it known how many banks would still be considered deficient; Sunday’s figure of 13 was higher than the 10 rumored last week.
Results of a parallel review by a second regulator, the European Banking Authority, which included 20 banks in Britain, Sweden and other European Union countries outside the 18-member euro currency bloc, were also announced on Sunday.
The findings were largely in line with the European Central Bank’s review. None of the banks that the authority’s stress tests found at risk were outside the eurozone. In Britain, the major banks all passed the stress test comfortably.
For the most part, Germany’s banks fared well in both reviews, which is crucial because of the outsize role the German economy plays in the eurozone. Deutsche Bank, the country’s largest lender, did not have any significant revaluation of its holdings.
HSH Nordbank, a lender in Hamburg, Germany, that many analysts had expected to fail because of its exposure to the depressed shipping industry, passed the stress tests. But the results appeared unlikely to put to rest doubts about the bank’s ability to survive in the longer term.
“The situation we have of banks without sustainable long-term business models still exists,” said Martin Hellmich, a professor at the Frankfurt School of Finance and Management. “There are still serious problems in the banking sector.”
French lenders, whose balance sheets account for about 30 percent of eurozone banking assets — second only to Germany’s — had an “excellent” showing, Christian Noyer, the governor of France’s central bank, said at a news conference Sunday in Paris.
The European Central Bank audit, conducted by 6,000 civil servants and outside consultants, was also a test for the central bank and its ability to handle its new function as supreme bank supervisor for the eurozone.
Previous stress tests by different regulators, which examined fewer banks and relied heavily on information from the banks’ national supervisors, were unconvincing because banks that had passed later ran into serious problems.
The audit was a prelude to the creation of a banking union overseen by the European Central Bank, a move that supersedes the Balkanized financial system that has prevailed since the euro currency went into use in 1999.
The central bank will formally become the eurozone’s so-called single supervisor on Nov. 4.
Danièle Nouy, who will head the central bank’s new regulatory arm, said in a statement that the findings of the review would “enable us to draw insights and conclusions for supervision going forward.”
Some pickup in bank lending after the tests is almost inevitable. Bank executives complained that the burden of complying with European Central Bank demands during the review had drained resources and impeded their ability to make loans. Now that the exam is over, they should be able to get back to business.
But if investors and analysts decide that this new test was still too easy for banks to pass, it would be a setback for both the European Central Bank and the eurozone economy.
“On the whole it seems to me that the E.C.B. has passed its own stress test today, “ Nicolas Véron, a senior fellow at Bruegel, a research organization in Brussels, said by email. “This exercise appears credible as of now.”
“Of course, if new information emerges in the next few weeks that is inconsistent with today’s disclosures,” he added, “then the E.C.B. will have egg on its face.”
Chad Bray contributed reporting from London, David Jolly from Paris and Niki Kitsantonis from Athens.