Concerns over latest EU bank stress tests FT 09/03/11

Frontpage of tomorrows FT What price AIB and B of I passing surely AIB in particular cannot ?? … z1G3RzGivb

By Patrick Jenkins in London, James Wilson and Ralph Atkins in Frankfurt and Nikki Tait in Brussels

Published: March 8 2011 12:22 | Last updated: March 8 2011 19:46

Key parts of a stress test for European banks designed to raise investor confidence in the sector have been softened by regulators despite widespread derision of a similar exercise last year, which was seen by financial markets as too lax.

Some of the scenarios under which bank balance sheets will be tested are more benign than the tests that failed to gain investor credibility last year.

In depth: European banks - Mar-04Bar to be raised for EU bank stress test - Mar-06Europe’s bank regulator aims to restore faith - Mar-06European banks braced for new stress tests - Mar-03The new stress test will model the impact of a 15 per cent fall in equity markets on banks – way below the numbers used in the 2010 test, with no discernible toughening of other key parameters.

The European Banking Authority, created in January as the new pan-European regulatory body, is keen to gain credibility and cast off the maligned reputation of the Committee of European Banking Supervisors, its predecessor.

But one senior London-based bank analyst said: “There is nothing in what has emerged to change the market’s views about this process. It was a joke last time. Why is it not going to be a fudge this time?”

**The 2010 stress tests, conducted last summer, were criticised at the time for being too easy, and lost credibility when Ireland – whose two biggest banks passed the tests – was forced to seek bail-out money, largely to save those banks.**Handelsblatt, the German newspaper, on Wednesday published leaked data points for the test, later confirmed by people close to the exercise.

The 15 per cent projected fall in equity markets compares with a 20 per cent scenario used overall last year and a 36 per cent slump modelled for banks’ equity holdings that were immediately “available for sale”.

Macroeconomic stresses – modelling for a 0.5 per cent shrinkage of eurozone gross domestic product this year and 0.2 per cent next year – are also more benign than a year ago, in line with upgrades of economic growth expectations by the European authorities.

Though analysts were broadly sceptical of the toughness of the measures, they did praise the inclusion of one new measure – a 1.25 percentage point increase in banks’ own funding costs in a stress scenario.

Andrea Enria, the new chairman of the EBA, told the Financial Times recently that he was determined to make the exercise more credible, and use it as a trigger for the widespread injection of fresh equity into Europe’s most poorly capitalised banks.

In particular, Mr Enria is keen for there to be not simply a pass-fail mechanism for the tests, with no follow-up action by national regulators. Those who narrowly pass, as well as those who fail, should be forced to increase their capital ratios, he said.

Oh lord, same s**t different day, who do they think they will kid?

These banks are run off excel spreadsheets and access dbases. Why do people think they suddenly have the ability to model complex stressed scenarios.

An academic excercise on the back of fag box.

The whole point that a stress-test is required provides the only result necessary i.e. the stress test is … does your bank require a stress test ?

Hmmm makes me think…

The only people that have a certificate to say they are sane…are people that have been in a mental institution!

The sovereign bond ‘stress’ amount is laughable. Another charade? Probably.

Enda on Bloomberg: no corporation tax changes, separate sovereign and bank debt:

I was dreading watching that, but he was pretty OK.

Fairly well breifed. The usual politico bullshit.

No more embarassing than most other world leaders.

So far, so good from Mrs. Edna.

The same can’t be said for the stress tests. Once again the Irish Central Bank tests are much stricter, but still probably not enough (at least not for “adequately capitalised” to be guaranteed - I reckon they might be enough for “undercapitalised but not insolvent”).

It’s funny how those who ridiculed anyone who criticised the previous ECB stress tests are doing the “of course everyone knew there were problems with the previous tests”…

The Germans have already more or less ensured that nothing will be published which makes their banks look bad.

As usual when it all goes wrong, the Irish will be the villain of the piece. According to Lorenzo Bin Smaghi at least.

Why do I have the Déjà fxxxxx vu feeling…


The Irish may have had enough, and this not an academic matter. By law it seems the Irish must vote on the new powers that the Eurocrats are celebrating. And as we understand it, a vote against these new powers by just one country could scuttle the whole affair.

Last time, Brussels leaned hard on the Irish elite and the country was massively propagandized. The Irish had the temerity to vote against the Lisbon Treaty, giving the EU additional powers that it had once sought to acquire via its scuttled Constitution – and thus the Irish were forced into a “do over.” The Irish complied the second time; the Lisbon Treaty was law. Will the Irish be so complaisant this time around? The Observer:

Irish voters’ support for new EU powers cannot be taken for granted. And there is now good reason to fear that Irish voters would be even less forthcoming in future referenda … The Irish public remains more distrustful of public authorities than at any time since the country’s independence in 1922 … The terms of the 2010 EU-IMF bail-out are considered illegitimate by the vast majority of Irish voters. This sentiment is only partly focused on the high interest rate premium that the EU imposed on its loans to the already-overburdened Irish state.

Conclusion: The EU, in the fullness of its ambition and power, may have to attend once more to a tawdry nation of five million that it has spent the past year thoroughly abusing. If so, the irony is fairly substantial in our view. Quem deus vult perdere, dementat prius. “Whom the gods would destroy, they first make mad.” Such ancient aphorisms are apt.