“The tens of billions of euros euro zone banks set aside for loan losses in their latest annual accounts may have substantially reduced the chance of institutions failing ECB stress tests in the next few months.

“A total of 71.5 billion euros ($99.3 billion) was set aside in 2013 by the 20 biggest listed banks involved in the exercise, a Reuters analysis of their new annual reports shows. Many also boosted capital ratios by raising cash and hoarding profits.

“If replicated across the 128 lenders subject to tests the European Central Bank aims to complete by October, it could mean no bank will fail or be forced to raise large amounts of new capital. Such limited consequences helped discredit previous tests by EU financial watchdog the European Banking Authority (EBA) – one reason the ECB is keen to show that its new exercise will truly be tough on the region’s banks.

“While some analysts have suggested that a failure by the ECB to force the closure of any euro zone bank after its own tests could again undermine the credibility of the exercise, many see it as more important that the ECB’s scrutiny creates a stronger banking system – something the data suggest is happening.”

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Read full Reuters article here.