Don’t stress…

The European Union will release tomorrow the results of the so called bank stress tests. Those tests are aimed at estimate the strength of European banks and their ability to survive a financial crisis.

Since the beginning of the week, there has been an increasing expectation and concern among economists and analysts – which translated into a fall back of the Euro – particularly at a time when the fear of a double dip or W-shape recession is growing due to gloomy indicators in the US.

Here are a list of possible scenarios :

  • Straight A: if all the banks pass the test summa cum laude, that will simply be too good to be true [*], and the assumption that Europe has some bad news to hide will fuel the doubts on European finance.
  • Bad news: Some bad news, like too much banks failing, or big banks doesn’t passing would be a very bad surprise, and naturally start a new trust crisis.
  • Overall OK: The only acceptable outcome would be to have the big banks passing and a few smaller, less important, failing or near failing. A result with no bad surprise, neither good surprise. (Basically, the market will be happy only if it gets what it expects)
  • Clear test: A final element is how clear and transparent the tests are. If it is not clear enough what the banks have to achieve to pass the test and how it asserted, that would raise the concerns that Europe wants to hide some not-too-good details.

Given this possible outcomes, one extra element is going to be very important:

A bank failing the test is not on the verge of collapse, it will just be in danger in case of a violent economic incident (which is not so muhc unlikely now that the fear of a double dip are growing) ; so the big question for failing banks is what is the plan to get them more solid : will there be any requirement, government plan to help them, …

All will be answer tomorrow, so see you this weekend for a debrief.

Advertisements

4 Comments on “Don’t stress…”

  1. […] économistes et analystes se posent sur la nature, la précisions et la difficultés de ces tests [*]. Au final, sur les 91 banques testés, 7 ne passent pas le test[*,*,*,*]. Ces résultats sont […]

  2. […] in uncertainties this week, leaded by questions on the nature, accuracy and toughness of the tests [*].Finally, 7 out of 91 banks fail the test[*,*,*,*]. Those results are in agreement with what the […]

  3. […] tests étaient globalement positifs mais avaient été critiqués comme trop facile à passer [*]. Dans la zone euro, des rumeurs sur une possible restructuration de la dette Grecque, ou sur le […]

  4. […] year, the stress tests were mostly successful, but have been criticized for being too easy to pass [*]. In the eurozone, rumors on debt restructuring for Greece or the need for Portugal to ask the help […]


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s