The big news of this weekend is the publication of the results of the ECB stress test. About 25 European banks have failed this test, giving rise to concerns about the stability of the European banking sector. 13 of these banks will have to produce a plan on how to raise cash within two weeks, and get another nine months to acquire the needed capital.
The test is considered as a necessary step towards the creation of a more integrated banking system within the EU, the banking union.
The last time the stress tests were undertaken there was a massive critique about how these stress tests work. Don't forget that previous tests managed to miss the subsequent collapses of the Irish banks and of Dexia, the Belgian bank.
Today's "stress tests" suggest that banks are in better financial shape than they were in 2011.
What is your opinion? Are the results really as bad as they are made to look? Is drastic reform needed?
Please reply in the comments box below. I'd love to hear your insights and opinion.
Replies
I am not surprised about this stress test! We know that a lot of Banks have not done enough to improve their Balance Sheet and Capital. Of course in the last 6 years (this time horizon is not peanuts!!!) they were concentrated in reducing risks and costs, but the main "emerging risks" are still there.... in addition to this lower margins and profit did not help to restore the Balance Sheet. Few Banks did really a good job and implemented everything to be a little bit more robust. What is for me concerning, it is the fact, that a lot of this Banks are pretty "local" or "regional" Banks (National), which it means that the supervisor "tested" against "local" scenarios, that is internal lending and real estate lending. Even I do not know in detail the stress tests; I miss an extremely important point: If the local Banks are in danger during extreme events, what happens to the Global Banks in this circumstance? Which does mean that once more the „supervisor“ does not consider „contagiaon effects“ or „butterfly effects“, although this is difficult to capture, also in complex scenarios analysis! For that reason I am a little bit concerned about the result, but still optimist!
Europe, it is your bank regulators who most must be stress-tested!
http://teawithft.blogspot.com/2014/10/europe-it-is-your-bank-regula...