The tens of billions of euros euro-zone banks set aside for loan losses in their latest annual accounts may have substantially reduced the chance of institutions failing European Central Bank stress tests in the next few months.
A total of 71.5 billion euros ($99.3 billion U.S.) was set aside in 2013 by the 20 biggest listed banks involved in the exercise, a Reuters analysis of their new annual reports shows. Many also boosted capital ratios by raising cash and hoarding profits.
If replicated across the 128 lenders subject to tests the ECB aims to complete by October, it could mean no bank will fail or be forced to raise large amounts of new capital. Such limited consequences helped discredit previous tests by EU financial watchdog the European Banking Authority (EBA) - one reason the ECB is keen to show that its new exercise will truly be tough on the region's banks.
While some analysts have suggested that a failure by the ECB to force the closure of any euro zone bank after its own tests could again undermine the credibility of the exercise, many see it as more important that the ECB's scrutiny creates a stronger banking system - something the data suggest is happening.
A survey last month of 200 clients of her own bank had, she said, found very few seeing it as essential to the credibility of the ECB stress tests that a major bank should fail.
ECB President Mario Draghi himself has highlighted progress already made since they learned of his plans and said this month he was "pretty confident" that the testing regime would "find a stronger banking system than we had before announcing it".
The EBA, which will coordinate this year's stress tests with the ECB, said investors were interested not just in whether banks pass or fail but their sensitivity to stress and how supervisors deal with the results.
Back in January, analysts at Keefe, Bruyette & Woods published a report showing 27 of the ECB's 128 banks failing a simulated stress test, though of these only Commerzbank was among the top 20 listed entities. The German lender has said it is "well prepared" for the exercise.
One senior official at a banking regulatory body in Europe told Reuters that he and his peers would not be concerned if the ECB review failed to force significant remedial action at major banks. However, several experts, speaking privately, emphasized that it could uncover surprises and problems.
