Seven of 91 banks fail European stress tests

Officials hoping to reassure markets about losses from crisis

LONDON — Seven of 91 European banks failed stress tests aimed at measuring their strength in case the continent's government debt crisis takes a turn for the worse, regulators said Friday. European Union officials hope the results will reassure markets worried about hidden bank losses from the crisis.

The EU said the tests were tough and showed their banking system was resilient enough to weather a slower economy and more turbulence on financial markets.
The Committee of European Banking Supervisors said the seven banks would see their capital positions fall below levels deemed sufficient if there is a steep fall in the price of government bonds many of them hold, a worst-case scenario dubbed a "sovereign shock."
Germany's already-nationalized lender Hypo Real Estate Holding AG failed the strength test, but that had been widely expected. Five unlisted Spanish savings banks failed too, their finances battered by the collapse of a property boom: Diada, Unnim, Espiga, Banca Civica, and Cajasur, which was bailed out by the Bank of Spain in May.
Greece's ATE bank failed too and confirmed that it would go ahead with a capital raising exercise.
In total the seven banks have to raise €3.5 billion to shore up their finances, CEBS said.
Policymakers around Europe hailed the process as confirmation that Europe's banking system is in good health despite a government debt crisis and the deepest recession since World War II
The European Union said the results "confirm the overall resilience" of the continent's banking system.
Christine Lagarde, France's finance minister, said the tests were "tough" and "very comprehensive and as a result I would suggest that those results should be very credible and should raise the confidence in European banks."
Investors are still poring over the results to see what to make of it all. Fears had been that the scenarios would not be tough enough to reassure markets, and the euro was trading around 0.5 percent lower at $1.2819.

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Giovanni Carosio, Committee of European Banking Supervisors; Vitor Constancio, European Central Bank; and CNBC's Simon Hobbs.