Six of the 14 German banks tested did not disclose their exposure to sovereign debt, one of a few key benchmarks in an exercise designed to test banks' resilience to future economic shocks.
The US, the International Monetary Fund and markets had heaped pressure on regulators to fully disclose banks' exposure in the tests.
Officials from Germany's BaFin regulatory authority said the banks were not obliged to fully disclose their exposure under German law, the Financial Times reported.
Among the banks that hid their sovereign debt quotient were Deutsche Bank, Postbank, Landesbank Berlin, Hypo Real Estate, and mutual groups DZ and WGZ.
Hypo Real Estate unsurprisingly failed the test as the bank had sought a further €2 billion in state aid before the tests began.
The European Commission yesterday (25 July) also waded into the debate, urging banks that had not made known their sovereign debt exposure to do so as soon as possible.
Ahead of the tests, sources had predicted that some banks would try to conceal their exposure to sovereign debt as disclosing such information would make markets too jittery (EurActiv 02/07/10).
Seven out of 91 banks failed test
According to the results, which were released on Friday evening, only seven of 91 banks failed the stress tests, meaning that their tier one capital ratio – measuring core capital against total assets – fell below a 6% margin.
The tests showed that the seven failures had moderate capital shortfalls – 3.5 billion - sparking fears that the tests were not rigorous enough.
Under the most severe scenario banks were tested on how they would cope with a moderate recession this year and next, with additional losses on government bonds thrown in.
Five of Spain's small regional lenders, known as cajas, failed the test. The Bank of Spain said the banks would need €1.8 billion, while analysts predicted that their recapitalisation would likely herald a restructuring of the troubled sector.
The two other failures were Hypo Real Estate and a troubled Greek lender, the state-controlled ATEbank.
Analysts have been heaping criticism on the test scenarios, claiming they were designed to leave the sector looking stronger than it is.
"I see nothing stressful about this test. It's like sending the banks away for a weekend of R&R," said Stephen Pope, chief global equity strategist at Cantor Fitzgerald.
Market watchers were disappointed that the tests' sovereign stress scenarios were applied to banks' trading books alone and not to their banking books, where nearly 90% of sovereign holdings lie.
This would have spelled default for Europe, an outcome governments were keen to avoid.
Just before the publication of the tests EU ministers were in secretive talks. Sources say government officials were still undecided about how much they could ask their banks to disclose (EurActiv 23/07/10).
