EU REACTION:THE EU authorities responded to the stress tests results with a defence of their rigour and a direction to banks which failed the test or narrowly missed failing it to ensure they raise new capital.

“For those banks that have not met the threshold, and for those that have but still demonstrate substantial weaknesses, we expect them to take all the necessary steps to reinforce their capital positions,” said a joint statement from EU internal markets commissioner Michel Barnier and economics commissioner Olli Rehn.

The message from the European Central Bank was similar.

“The ECB encourages the governments to fully implement the commitment they undertook….to ensure that the necessary remedial actions are taken.”

The two commissioners said they wished to emphasise “the full and detailed transparency attached to these tests”, for example as regards sovereign exposures. “The data is there for all to see, including banks’ full exposure to sovereign debt,” they said.

“Today’s results highlight that the great majority of European banks are now much stronger and better able to resist shocks. In anticipation of the test, many banks have already taken actions to strengthen the resilience of their balance sheet though private sector measures and government financial aid.

“The EU-wide stress tests are more rigorous than those conducted previously. In particular, the definition of capital is stricter, the scenarios used are more severe, and for the first time a thorough peer review exercise has been conducted to ensure coherence and consistency of results.”

The test results come days before the commission makes proposals to require banks to hold more capital, of better quality and to introduce requirements for the first time relating to liquidity and excessive leverage.

Its objective with these plans, still subject to political agreement by member states and MEPs, will be to ensure banks can better withstand financial shocks and longer-term funding stresses.

The two commissioners said priority is to be given to private sector solutions in the recapitalisation effort in the wake of the tests.

“It is important that stress tests are understood for what they are: an essential piece of the puzzle, but not the whole solution, in making the whole financial sector more robust,” they said.

“These results should be seen in the context of a broader effort to reform the EU financial sector and safeguard financial stability.”