FT reports that European banks in tomorrow's stress tests would need to raise €900bn
"Ahead of the 2016 tests, the trio of academics employed an alternative methodology which looked at what would happen to banks if there was a 40 per cent fall in global markets over a six-month period.
The academics estimate that banks would have to raise €882bn to reach a 5.5 per cent common equity tier one ratio (...) The 5.5 per cent ratio was the EBA’s pass mark last time round. Together, the 51 banks in the stress tests have €1.18tn of common equity tier one capital.
France comes out of the analysis worst, with the three French banks in the 2016 stress tests needing almost €250bn, followed by the UK’s four listed banks, whose requirement would be €185bn. Spain’s six listed banks were found to have a shortfall of €116.6bn, Germany’s shortfall was €114.4bn, across two listed banks, and Italy’s was €96.6bn across five listed banks.
Mr Steffen said that the shortfalls were so great that in many cases the banks would require government support even if the countries used the new bail-in rules to force losses on bondholders.
In Germany, the shortfall is 250 per cent of the combined value of the banks’ subordinated debt and equity, in France it is 162 per cent of equity, and subordinated debt and in Italy it is just over 100 per cent. "
For the record, and as context...
The whole EU GDP amounts to some €14.6tn, so they are calling for raising capotal roughly equivalent to 6% of EU's GDP, and bear in mind that this stress tests leaves out many smaller banks throughout Europe.
The two German banks are Deutsche Bank and Commerzbank. Deutsche Bank's shareholder's equity as of June 30 amounts to €61.9bn (although its market cap is just €16.4bn) so, in the case of DB, these academics are calling for raising at least as much capital as DB's equity and, combining both German banks, roughly 3.3% of Germany's GDP.
This figure for Spain would be around 10% of Spain's GDP for Spanish banks and nearly 10% of France's GDP for French Banks