LONDON – Ninety-one banks. Twenty countries. One exam. So who’s going to flunk the European stress test? Markets were on alert Friday, waiting for regulators to finally publish their investigation into the financial health of Europe’s banking sector. The goal of the tests is to allay market fears that the banks are in trouble after a global recession and the discovery that many European countries were carrying too much government debt.
Although most of the banks are expected to get the all-clear, there is a great deal of market concern that the tests are not as stringent as they should be, or even as rigorous as those in the United States a year ago. “Given the recalcitrant and rather secretive way in which it has been prepared, the release of bank stress tests results is unlikely to be the silver bullet that guarantees a rapid normalisation of the financial system,” said Marco Annunziata, chief economist at UniCredit in London.
Despite the intense market focus on the tests, little is actually known about how the London-based Committee of European Banking Supervisors (CEBS) is conducting its analysis – in marked contrast to the US banking tests that demanded more than half the US banks shore up their reserves.
The key unknown is what potential losses the CEBS assumes banks will have to absorb from losses on investments in government debt, notably those from Greece, Portugal and Spain – the three countries considered the most financially shaky.What is known about the test is that the CEBS is assuming that the EU economy will suffer another recession. (AP)
