I wonder how many how many hours of overtime the spin doctors in Brussels will be able to file by the end of the week? One thing’s for sure: they’ve been working their asses off lately in attempt to calm the nervous market participants before releasing parts of the stress test of 91 European banks on Friday. So far they seem to have done a pretty good job, by leaking certain information to the media.
“Our banking system is resisting in a way that is reassuring.”
The statement above was made by the ECB chief on October 1th last year, after The Committee of European Banking Supervisors (CEBS), had carried out a stress test of 21 major European banks. He also said the test was based on a “very harsh” scenario. According to the massive leakage to media lately, this is still the case, even with almost 4 times as many banks tested. All Greek, Spanish and French banks are said to have passed the test – once again.
Here’s some quotes from last days news stories:
* “British banks will not need government help to shore up their financial position after the publication of European Union stress tests,” Chancellor George Osborne said to Reuters on July 15th. Italian central bank governor Mario Draghi made a similar comment about his country’s banks earlier on Thursday, Reuters reports.
* ECB’s Draghi says confident stress test will show single Italian Banks capital is adequate, according to RAN Squawk.
* Spanish Deputy Finance Minister says Spain can only win from stress test and transparency is the path to credibility, RAN Squawk reports.
* Greece’s Alpha Bank, Eurobank up 5% on optimism they will pass stress test.
* ECB’s Nowotny says expects markets to react positively to stress test results.
* Spain’s economy minister says bill auctions show signs of confidence to be confirmed by stress test.
* France Lagarde says confident of results of French banks stress test.
To sum it up; all Spanish banks pass stress tests, all French banks pass stress tests, and pretty much all Greek banks pass stress test.
May I remind you of the following statement published by the EU administration on October 1th 2009:
“Jean-Claude Trichet, the president of the European Central Bank, said the test was based on a “very harsh” scenario. “Our [banking] system is resisting in a way that is reassuring,” he said”
That was only 9 months ago. This time they’ve added a new scenario to the test – sovereign defaults.
The next test will hopefully also include other scenarios, like a US default situation or a Chinese credit collapse. There’s a lot to choose from.
Irish And Germans In Trouble
However there’s been some leaks about who’s about to fail the test, too.
“Hypo Real Estate didn’t pass a stress scenario on its capital that assumes an economic slowdown and sovereign-debt losses, said the people, who declined to be identified before an announcement on July 23.”
I don’t know how many times Hypo have been bailed out by the German government already, but that the bank have failed the test hardly qualify as as news.
However, 14 of the 91 banks that’s been tested is German.
I guess it’s fair to mention that Spanish official have made another statement after the first one by Spain’s Deputy Finance Minister (quoted above) was published, , saying that the Deputy’s quote is taken out of context. It appears like a caja or two will be sacrificially thrown to the lions after all.
It’s also largely expected that a couple of Irish banks have failed to meet the requirement of sufficient funds in reserve to cope with various potential future financial crises.
A New Tradition Is Born
I’ve earlier made some jokes about EU setting up a new agency (like they always do when there’s a situation) to handle new stress tests as new problems in the banking sector comes to surface.
It now seems like it’s about to become a reality.
The body coordinating the European Union health checks on banks is struggling with its own “stress test” of how it handles the politically-charged exercise and must hope new powers from next year make repeat checks easier, Reuters reports.
The Committee of European Banking Supervisors (CEBS) was set up as an experimental consortium of national regulators in 2004 to make EU financial lawmaking faster, flexible and more consistently applied.
CEBS has no powers of its own and is an agency of the EU’s executive European Commission to advise Brussels on banking issues and issue non-binding guidelines on implementing the bloc’s financial rules.
But from January 2011 the CEBS will be upgraded to a European Banking Authority and have binding powers to bring in line a national regulator that errs in applying rules and guidelines.
Right now CEBS is only doing what its masters allow it to, experts says.
“Governments are not prepared to give them power so nothing will change, guidelines won’t be applied exactly in the same way,” says Graham Bishop, who has advised the EU on financial services legislation.
There are more stress tests to come – you bet!
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