Greece’s four systemic banks will be called upon to demonstrate their ability to endure a recession until the end of 2015 while maintaining a bare minimum of capital adequacy ratios. The banks will also have to maintain a Cote Tier 1 index about 5.5%, based on the “grim scenario” adopted by the European Central Bank (ECB) in its stress tests.
Despite having recently yielded 8.31 billion euros of capital funds after the Central Bank of Greece conducted its own stress tests, the Greek banks are prepared to take action in order to cover any additional needs that may arise. Banking circles estimate that should there be a need for further funding the necessary sums will be rather low.
With the exception of Eurobank, most the required funds have been collected via capital increases, or will be collected through other initiatives. Compared to the inspections conducted by Blackrock, the ECB’s inspection is going to be far greater and more extensive, which could result in some differentiation regarding additional estimations.
According to the ECB’s scenario, the new potential crisis will originate in the long-term bond market, which in turn will affect the American economy, as the investors’ refusal to invest in the state debt will trigger an interest rise. As a result, funds from emerging economies will be diverted elsewhere, leading to a reduction of domestic demand and an immediate drop in Eurozone exports.
Accumulatively, the Eurozone’s GDP losses during the 2014-2016 three-year period is set at 2.1%, while unemployment will climb to 13% and prices drop by 20%. In Greece, the main scenario predicts growth over the same three-year period (0.6%, 2.9% and 3.7% GDP respectively), while unemployment decreases to 26%, 24% and 19.5%. Conversely, the “doomsday” scenario predicts a prolongation of the recession (- 1.6%, -0.6% and +1.6% in 2016), while unemployment remains high at 26.5%, 25.3% and 21.6% during those three years.
