Impending bank stress tests results make EU markets jittery
21 Jul 2010
Brussels: European Union member nations are stress-testing a large number of their banks in an effort to reassure financial markets about their health and are due to publish the results on Friday 23 July. It is an event being looked forward to with a certain amount of trepidation by the markets as there are fears that the whole exercise may well turn out to be an act of deception, in a bid to disguise the rot prevailing in the system.
It may well have become a Catch-22 situation for the EU banks with positive results indicating a less than rigorous test in a bid to shore up confidence in their financial health and a negative result sparking off a market sell-out. The problem stems from the fact that unlike a US test last year, in which 10 of the 19 banks tested failed, the EU test is not transparent.
The US test resulted in failed banks being told to raise up to $75 billion to shore up their positions.
The stress results are a direct consequence of Europe's debt crisis which has already resulted in a euro110 billion international bailout for Greece. EU governments have lined up a $1 trillion backup fund for governments that may face financial meltdowns. The financial mess across the region has left financial markets jittery about the exposure of EU banks to Greek debt as well as those of other shaky economies in the Union.
What has made the markets even more suspicious are the constant assertions that most of the 91 banks being tested are expected to pass. Such a result would lack credibility, say analysts.
Failure to pass the test won't necessarily mean the banks are ruined, but like the US ones they too will have to raise funds to shore up their position.
