EU Banks Pass Moody's Debt 'Stress Test'

Many of the European Union's biggest banks passed Moody's 'stress test' designed to gauge exposure to debt in Greece, Portugal, Spain and Ireland, the rating agency said in a statement Friday.


"Based on our stress test, we believe that these banks would be able to absorb the losses that could arise from such exposures without requiring capital increases - even under worse-than-expected conditions," Jean-Francois Tremblay, a senior analyst at Moody's, wrote in the report.

"The average regulatory capital ratio of the banks that we stress tested is well above 9 percent," he added.

The "stress test" was based on a survey of more than 30 European banks from 10 countries and judged their exposures to sovereign and public sector debt as well as private sector loans in Greece, Portugal, Spain and Ireland, the report said.

Moody's concluded that the debt levels are "manageable relative to their current capital levels" and that it does not expect any rating actions based on the exposures.

A lack of clarity on the level of banks' exposure to the European debt crisis has led to investor concerns, Moody's noted.

"Banks' cross-border exposures in Greece, Portugal, Spain and Ireland to a range of private claims, such as residential mortgages and business loans, are greater than those related to government debt," the rating agency found.

If banks were forced into a fire-sale of debt because the crisis escalated, the losses would be manageable and they would be able to use the European Central Bank's repo facility, or repurchase agreement, to provide liquidity, according to Moody's.