Use access key #2 to skip to page content.

TMFHousel (93.03)

How About Those European Stress Tests?



July 25, 2010 – Comments (1)

From the WSJ:

"In some of the 20 countries that conducted the tests, regulators figured that property values would keep rising or hold steady in a worst-case economic scenario.

In other cases, unemployment rates in a double-dip recession crept up by as little as 0.1 percentage point from the tests' so-called benchmark scenario, which is based on current economic conditions."

There was substantial criticism that our bank stress tests weren't hard enough, but it was nothing like this. The Euros are some bold folks.  

1 Comments – Post Your Own

#1) On July 26, 2010 at 3:58 AM, checklist34 (99.61) wrote:

These tests are risky to the markets as they were more or less unstressful.  more than less, even.

The risk is that no-confidence will be found in them, rather than confidence, and markets will react poorly.  If not today, then in a week or whenever.

Hopefully, enough information was released in conjunction with them to at least give people the ability to dig around and run their own stress tests with mroe realistic scenarios.  

The Europeans just didn't get the point of our stress tests here.  Our tests worked because A) they forced a whole lot of banks to raise a whole lot of capital and B) didn't reveal a doomsday scenario (which had already been basically priced into the stocks).  So stocks could rally enough for banks to sell shares at prices not completely destructive to shareholders while raising enough capital to be around as well capitalized as they have been in ages.  

These tests, for all practical purposes, accomplish little.  I hope it doesn't backfire.  

Report this comment

Featured Broker Partners