Sovereign debt and bank risk: New evidence

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.

Guntram Wolff, 30 October 2011Stress in the interbank market has increased dramatically since July 2011, and bank stock market valuations have fallen by 22% on average for 60 of the most important banks subject to stress tests. This column argues that bank stock valuation has been affected by the banks’ exposure to Greek debt and that Greek banks were particularly affected. Holdings of debt of the other four periphery countries does not, however, appear to be a strong determinant of stock price movements.

Reuters has an interesting Interactive Eurozone Bank Stress Test Adjust the Tier 1 Capital Ratio and Sliders for Haircuts and out pops an answer. This is what I came up with. It is hard to get the sliders to stop exactly on the spot you want.

THE Bank for International Settlements, often called the central banker's central bank, is a bastion of conservatism and policy orthodoxy. Unsurprisingly, the BIS is not particularly comfortable with the central bank policy interventions that have been adopted as a response to demand-side weakness at the zero lower bound.

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.

Article written by Prieur du Plessis, editor of the Investment Postcards from Cape Town blog.This post is a guest contribution by Elga Bartsch, Daniele Antonucci, Arnaud Mares & Joachim Fels of Morgan Stanley.

Miguel Cardoso, Rafael Doménech, 13 December 2010Are concerns over the sustainability of sovereign debt in Europe justified? This column presents data covering 16 developed countries including Greece, Italy, Portugal, and Spain.