French banks have hit the leading position in Europe with more than USD 410bn in aggregate Tier 1 capital, overtaking UK financial institutions for the first time.
Many bank stress tests use Tier 1 capital as a starting measure to evaluate the bank's liquidity and ability to overcome a challenging economic scenario. Although the COVID-19 crisis hit the European banking system hard, with even the largest banks reporting massive financial losses during the first half of 2020, most of them still managed to improve their Tier 1 capital positions.
After the 2008 financial crisis, many financial institutions were running on too much debt and did not hold enough equity. Since then, European banks have strengthened their capital position and improved the quality of the assets on their balance sheets.
In 2008, the aggregate Tier 1 capital of French banks amounted to around USD 250 bln, revealed TheBanker Top 1000 world banks’ 2020 data. By the end of 2015, this figure jumped to USD 350 bln and continued growing. Statistics show the aggregate Tier 1 capital of French banks increased by another USD 50 bln between 2015 and 2020.
According to data presented by BuyShares.co.uk, for the first time in seventeen years, the UK banking system lost its leading status in terms of Tier 1 capital. Statistics show that in 2008, British banks had around USD 360 bln in aggregate Tier 1 capital. In 2014, this figure peaked at over USD 470 bln. However, the last six years witnessed a significant decreasing trend, with the aggregate Tier 1 capital falling to USD 404 bln in 2020, a USD 35 bln plunge in five years.
TheBanker data revealed that Spain, as the third-leading European country on this list, demonstrated the best overall performance in the last two decades, increasing its Tier 1 capital more than fourfold to USD 223 bln in 2020. German banks follow with USD 201.6 bln, respectively.
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