About half of the 103 banks directly supervised by the European Central Bank would not survive a six-month period of significant liquidity shocks, according to the regulator's 2019 supervisory stress test.
The ECB's stress test showed that four banks will not last for six months if they were frozen out of wholesale funding markets, while 51 lenders will collapse within six months under an adverse shock in which they would see some outflows and a one-notch downgrade of their credit ratings.
Meanwhile, 26 banks will last for longer than six months under an extreme shock scenario in which there would be more outflows and their three-notch credit rating downgrade.
Universal banks and global systemically important banks would generally be hit the hardest by the shocks due to their higher reliance on less stable deposit types and wholesale funding, the ECB said.
The ECB said the results were "broadly positive," considering that the six-month time horizon of the stress test exceeds the period covered by the liquidity coverage ratio, which requires banks to hold enough high-quality liquid assets to allow them to survive a 30-day period of significant liquidity stress.
Several lenders restated their regulatory liquidity reports following the stress test, which the ECB said supervisors will use to inform their assessment of banks' governance and liquidity risk management.
