UPDATE 2-First 3 German banks pass stress tests-sources

Published: 29 Jun 2010 17:18:14 PST

* Deutsche Bank, Commerzbank, BayernLB all pass-sources

* More than 100 European banks could face tests-sources

* Banks to be tested on GDP fall impact, details uncertain

FRANKFURT, June 29 - Deutsche Bank and two more top German banks have passed European stress tests to see whether they could handle more economic turmoil or shocks to the financial system, people familiar with the matter said.

Deutsche Bank, Commerzbank and BayernLB had all passed the test, three sources said.

European regulators are assessing the ability of at least 25 of Europe's biggest banks to withstand the impact of a severe economic downturn and losses from loans souring. Results are due to be revealed next month.

The criteria for the tests is not clear, however.

Banks are being tested to see if their Tier 1 ratio stays above 6 percent after a GDP decline of 5.2 percent in 2009 and a decline of 2.7 percent in 2010, two sources said.

The trio of German banks, the first in the country to be subjected to the examinations, declined to comment.

The United States and Britain have carried out stress tests, and the success of the European tests will depend on how severe the "stress" is, the transparency of the results and what plans are put in place for banks who fail to recapitalise.

UK banks raised 134 billion pounds ($202 billion) to restore confidence before and after stress tests in 2008. The test was based on a peak-to-trough fall in GDP of 6.9 percent, sharp falls in house and commercial property prices and a rise in unemployment.

MORE TESTS

A second round of tests proposed by the European Central Bank and the European banking regulator CEBS will examine more than 100 other banks in Europe, 15 of them in Germany, sources close to the matter told Reuters on Monday.

The new tests aim to shore up investor confidence after banks have been hit by jitters that a "double-dip" recession and losses from sovereign debt will leave them close to minimum capital levels.

It could also include losses -- or "haircuts" -- taken by banks on their exposure to sovereign bonds in Greece and other countries where sovereign risks have increased.

Germany's central bank and financial market watchdog have called a meeting on Wednesday with the country's largest banks to discuss test results, sources said this week.

In Europe, Germany's banks have the biggest volume of bad loans on their books, a study from auditing firm PricewaterhouseCoopers shows. At the end of 2009 German banks carried non-performing loans with a nominal value of 213 billion euros ($260 billion) on their balance sheets, 50 percent more than a year earlier, PwC said on Monday.

Deutsche Bank and Commerzbank shares were down 3.5 percent and 2.3 percent, respectively, compared with a 3.9 percent drop by the European bank sector. (Additional reporting by Philipp Halstrick; Editing by David Cowell) ($1=.8194 Euro)