LONDON (CNNMoney)Europe’s economy is looking frail again, but is it at risk of cardiac arrest?
The banks at the heart of the eurozone economy are about to find out whether regulators will give them a clean bill of health, or send them back to the emergency room.
European officials have just completed an extensive health check on the region’s top 130 banks and are due to reveal the results Sunday.
The whole point is to weed out the weaklings that are hobbling the European economy, or that could spark a new financial crisis in the event of another long recession.
Regulators have been poring over bank finances, and testing whether they have the strength to withstand a nasty shock, such as a spike in loan defaults or unemployment.
The health of the sector is of vital importance for the eurozone, where growth has evaporated again and the specter of deflation looms.
Most European companies rely on bank finance, unlike their U.S. peers who are more likely to issue bonds. Banks with shaky foundations are less likely to take risks with their lending, therefore potentially stifling investment and growth.
Major players such as Deutsche Bank (DB) and Santander (SAN) were among the test subjects.
Regulators will release a prognosis on each bank at 7 a.m. ET Sunday, providing insight into how healthy the banks are now and how they could fare in the future.
If a firm is deemed too sick — meaning it wouldn’t have the resources to cope with a shock — it will be forced to submit remedies, including possibly raising more money from investors.