In Europe, ‘stress test’ no sweat for most banks
LONDON — Seven of the 91 European banks flunked the “stress tests” aimed at clearing up market fears about the strength of the continent’s banking system amid the debt crisis.
In total, the seven banks have to raise 3.5 billion euros (about $4.5 billion) to shore up their finances, said the Committee of European Banking Supervisors, the regulator charged with conducting the stress tests.
That’s much less than some analysts had been predicting, and the committee said Europe’s banks have, over the past couple of years, gone a long way to shoring up their balance sheets.
Some analysts were unconvinced, noting that similar tests last year in the United States resulted in 10 of the 19 banks tested being required to raise $75 billion.
“The stress tests do not seem that stressful, and it is looking more like a political whitewash rather than a genuine attempt to reassure financial markets,” said Neil MacKinnon, global macro strategist at VTB Capital. “They are delaying the day of reckoning.”
By contrast, policymakers in Europe said the stress test will reassure markets worried about hidden bank losses from the crisis.
The European Union called the results a resounding vote of confidence that “confirms the overall resilience” of the continent’s banking system.
Was the much-anticipated test tough enough to be credible? The verdict will come on Monday, when European stock markets reopen.
It had been thought that some banks needed to fail for the exercise to be accepted as credible, and some did: five
Continued from B in Spain and one each in Germany and Greece. But analysts still argued the results showed the tests weren’t rigorous enough — and the euro was trading flat after Friday’s announcement, at about $1.29.
If financial markets take the view the tests were not tough enough when European trading resumes Monday, that could further expose the European Union to charges it has failed to rise to the debt crisis within its borders.
In Washington, Treasury Secretary Timothy Geithner praised the EU’s “significant effort to increase disclosure on the conditions of individual European financial institutions and enhance market stability.”