Euro Resists Irish Banks Stress Test

Thursday, 31 March 2011 16:24

As expected by analysts, the EUR/USD survived without much difficulty the Irish banks stress test. Despite less than passable results, supportive comments from the ECB maintained investors’ confidence in the euro.

The Central Bank of Ireland revealed that four Irish banks did not meet the capital requirements to sustain potential future losses. In total, the banks will have to raise 24 billion euros for the years 2011-2013:

Allied Irish Banks : €13.5bn

Bank of Ireland: €5.2bn

EBS Building Society: €1.5bn

Irish Life & Permanent: €4.0bn

Although the results are very far from being positive, they clarify the extent of the difficulties facing the Irish banking sector. Being unable to meet the requirements on their own, the banks now rely on the ECB and the Irish central bank.

A supportive ECB

Following the release of the stress test, the ECB said the Irish banks’ capital need “can be funded comfortably”. The ECB also supported the strategy proposed for a future Irish banking structure.

As a result, the EUR/USD was able to retain a portion of its overnight gains. Despite chopping action, the EUR/USD closed the New York session above 1.4145.