Constancio says banks’ cash calls cut risk of ECB test fail

Jeff Black & Boris Groendahl

European Central Bank Vice President Vitor Constancio said lenders in the region are reducing the risk of failing a balance-sheet review by taking pre-emptive steps to increase capital ratios.

“We estimate that, based only on public information, banks since July last year have strengthened their balance sheets by an amount of 104 billion euros ($144 billion),” Constancio said in an interview with Bloomberg Television in Frankfurt on Tuesday. “Some of the measures have been really spectacular.”

As an October reckoning with the results of the ECB’s yearlong Comprehensive Assessment looms, lenders from Italy’s Banca Monte dei Paschi di Siena SpA to Austria’s Raiffeisen Bank International AG have announced share sales to boost their ability to withstand losses. That process will lower the number of banks that fail the ECB’s test, Constancio said.

“What we will find out will be less than what it would have been if the banks hadn’t front-loaded,” Constancio said. “We aren’t concerned with that fact because the market is aware of what is going on.”

Lenders in Greece, Italy and Austria are among those who are selling new shares to increase their capital ratios, while others have reduced riskier assets to help pass the test. The ECB has set a required ratio of 8 percent of capital to risk- weighted assets for its asset-quality review and 5.5 percent for the subsequent stress test.

Share sales

The ECB said Tuesday that, of the 128 banks in the assessment, those judged to be lacking capital will have to submit a plan to the central bank and will have as much as nine months to plug the shortfall. The ECB has previously urged...