The purpose of this capital exercise is to restore banks’ financial resilience as part of a broader package of measures to solve the debt crisis, as agreed on 26 October. Where necessary, banks need to raise additional capital buffers against their exposures to European sovereigns. These temporary and one-off capital buffers must be large enough to absorb the valuation of European sovereign debt exposures at market prices as at end-September 2011. In addition, the exercise requires that the banks’ capital buffers are large enough to reach a Core Tier 1 Ratio of 9% as of end-June 2012. Only capital of the highest quality will be counted in this solvency ratio.
This exercise is not a stress test like the stress test published by EBA and the banks in July 2011; it does not analyse the implications of an economic loss scenario, with for example a downturn in economic growth, and a fall in equity and real estate prices. It simply revalues the current balance sheet using market prices for the valuation of exposures to European sovereigns. The required minimal capital ratio is therefore considerably higher (9%) than for the European stress test in July 2011 (5%).
The methodology used in this exercise is public and can be found on the EBA website. The results of the exercise were thoroughly examined for correctness and consistency by both DNB and the EBA. Banks will publish their individual results themselves.