The results are in: Only seven of 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.
Was the much-anticipated test tough enough to be credible? The verdict will come tomorrow, when European stock markets reopen.
Some analysts were scoffing already on Friday.
“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 that eurozone banks have balance sheets that could really withstand sovereign risk shocks,” said Neil MacKinnon, global macro strategist at VTB Capital.
“They are delaying the day of reckoning,” he said.
It had been thought that some banks needed to fail for the exercise to be accepted as credible, and some did — five 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 just below US$1.29.
However, the stock market rose in New York on the news.
If financial markets take the view the tests were not tough enough when European trading resumes tomorrow, that could further expose the EU to charges it has failed to rise to the debt crisis within its borders.
In total the seven banks have to raise 3.5 billion euros (US$4.5 billion) to shore up their finances, said the Committee of European Banking Supervisors (CEBS), the regulator charged with conducting the stress tests.
That’s far lower than some analysts had been predicting, and the CEBS 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 US resulted in 10 of the 19 banks tested being required to raise US$75 billion.
“After economists, journalists, credit rating agencies and officials spend the weekend analyzing the results, the currency markets are likely to react negatively on Monday,” said Mansoor Mohi-uddin, managing director of foreign exchange strategy at Swiss bank UBS AG.
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