July 23, 2010 / 4:04 PM / 8 years ago

Hypo Real Estate fails European stress test

FRANKFURT (Reuters) - Nationalised lender Hypo Real Estate is the only German bank to have failed a set of tests designed to gauge the financial health of European banks, according to Germany’s top banking regulators.

In Germany, 14 banks took part in the so-called stress tests which scrutinised the capital strength of 91 banks across 20 countries to see how lenders would cope with an economic downturn and potential losses on their sovereign debt holdings.

Under the most severe scenario tested, Hypo Real Estate’s Tier 1 capital ratio fell to 4.7 percent, below the 6 percent threshold set by European banking supervisors.

The average Tier 1 ratio of all 14 German banks tested under the worst-case scenario was 8.2 percent, according to a joint statement by Germany’s BaFin regulator and the Bundesbank.

Munich-based HRE, which received more than 100 billion euros ($128.8 billion) in state aid, already has plans to shift about 210 billion in assets into what would become Germany’s biggest “bad bank.” Such a construct lets banks transfer problem assets off their balance sheets.

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