Half of the main banks in the euro zone would not survive more than six months in the face of an adverse disturbance of liquidity conditions in the region, while a quarter of the 103 entities examined by the European Central Bank (ECB) would overcome this period of survival even in the most extreme scenario.

"The results of the 2019 stress test reveal that the vast majority of credit institutions directly supervised by the ECB have a comfortable liquidity situation in general, despite some vulnerabilities that require more attention, " the central bank said, He did not hesitate to rate the test results as "positive."

Specifically, of the 103 banks under review by the ECB, a total of 52 entities would not be able to exceed the threshold of six months of survival in a scenario of adverse disturbances of liquidity conditions, while in the case of extreme disturbances , with an outflow of funds equivalent to 9.5% of the asset over a 30-day time horizon and 27% in half a year, the number of banks that would not exceed this survival period would be 77.

On the other hand, the issuing institute noted that 90% of the 103 entities examined reported periods of survival over two months, even in the most extreme scenario.

However, the ECB exam found that four banks from different jurisdictions and business models recorded in the tests a shorter survival period than the six months of the survival time horizon used in the exercise in the baseline scenario.

Survival Period

The "survival period" is defined, according to the ECB, as the number of days that an entity can continue to operate using the available cash and guarantees, without access to financing markets.

The six-month horizon exceeds the period covered by the liquidity coverage ratio , which requires entities to maintain reserves of high quality liquid assets sufficient to allow them to survive a period of significant liquidity tensions for 30 calendar days.

"Universal banks and credit institutions of global systemic importance would generally be affected more harshly than others by idiosyncratic liquidity disturbances, as they are usually based on less stable sources of financing, such as wholesale or corporate deposits," he said. ECB, while retail banks would suffer a minor impact, given that their deposit base is more stable.

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