RBC models bank tier one sovereign restructuring impact

Following the announcement of the EU stress test results, Royal Bank of Canada has taken the data published by the individual participating banks and applied a further test to each of their banking books looking at the capital impact from a debt restructuring of Portugal, Italy, Ireland, Greece and Spain.

From RBC’s model, analysts estimate that following a further debt rescheduling of these countries applying the same haircuts used by CEBS against the banking book exposures, an additional €17.7bn of capital would be needed by banks to sustain their tier one ratios at a level of 6%.

By these estimates, 24 banks would fail to maintain their tier one ratios at the minimum 6% threshold and would need to raise additional capital. RBC's interactive model also allows investors to apply their own sovereign haircuts to the banking book exposures disclosed by the institutions.