Harry Tuttle submits:What is a (banking) stress test?In theory, is an exercise where the bank revalues its assets under one or more adverse scenarios in order to find out whether or not it is adequately capitalized.Complete Story »
Alicia Damley submits:At the end of this week, results of the second European bank stress test exercise begun in March 2010 will be released. Given the EU’s structure, these tests have been finalized by Committee of European Banking Supervisors (CEBS) and the national supervisory authorities, in close co-operation with the ECB.
On October 23, ECB president Mario Draghi announced new bank stress tests. At the time, I offered a "Draghize" Translation. Here is a small snip. Translating DraghizeFor those of you who do not speak Draghize I offer these translations.Draghize: "Banks do need to fail to prove the credibility of the exercise".
When it comes to stress tests, especially for European banks, the one thing history suggests is the tests will be essentially stress-free, by design. Why should this time be any different?
Nonetheless, European Central Bank President, Mario Draghi Says ECB Won’t Hesitate to Fail Banks in Stress Tests.
For those of you who do not speak Draghize I offer these translations.
There are somewhat good news for the EU economy today insofar that only 7 of the 91 tested European banks failed their stress tests, coordinated by the European Commission office. The failures are mainly concentrated in Spain and the reason for this may be not so much the bad state of the Spanish economy but the peculiar way the whole exercise was devised.
Across the board, we are seeing European bank stocks (most notably Italian) trading halted. The 5-7% plunge in prices - just when everyone is proclaiming victory in Europe - reflects an apparent concern that the tougher-than-expected European bank stress-tests will expose the Italian banks for the bloated sovereign debt issuance soaks that they have become. As Draghi himself noted, in a desparate plea to maintain some credibility "banks do need to fail" to prove the credibility of the exercise, adding "if they do have to fail, they have to fail.
Research Recap submits:
This European Banking Authority’s proposed third round of bank stress tests can hardly do worse than last year’s fiasco that was followed by the failure of Irish banks that had passed the test. But this year’s model still lacks credibility and risks further undermining confidence.
John M. Mason submits: We have been given Quantitative Easing 2 ((QE2)) by the Federal Reserve System in the United States and now we are facing Stress Tests II ((ST2)) to be imposed on banking institutions in the European Union. Will we eventually be facing Financial Reform Act II ((FR2)) that will incorporate the next round of regulatory reforms of the financial system of the United States?
Ravi Nagarajan submits:The Committee of European Banking Supervisors (CEBS) released the much anticipated results of the EU wide banking stress test exercise Saturday afternoon. Seven banks failed the stress test and will require a combined total of €3.5 billion of new capital.
Marc Chandler submits:The newly created European Banking Authority will be overseeing the stress tests on almost 90 European banks. Recall that the stress tests last year met broad criticism for the lack of rigor. It was anticipated that the EBA would indeed provide for a more robust test this year. However, doubts are already being raised.Initially there are two areas of concern. The first is on the definition of Tier 1 capital, which is that part that can absorb unexpected losses.