The ECB is concerned over the perception of credibility of the tests since the prior bank stress tests blessed banks that subsequently went down the rabbit hole. 130 banks were tested resulting in the 25 failures, about one in five; 19%. The number of failures, however, cannot deem the success or failure of the stress tests since it is criteria-dependent. With near 20% of the European banks failing as per the bank stress test guidelines, if the criteria are stiffened, would one-half of the banks in Europe fail? The banks have two weeks of time to respond to the ECB conclusions and then six months to make changes to address their defects.
The European Banking Authority (EBA) releases complementary
bank stress test results failing 24 banks. The EBA tested 123 European banks so
the failure rate is also one in five; 20%. The bank failures are in several European
nations including three Greek bank failures, three in Cyprus and nine in Italy.
Monte dei Paschi rallied strongly Friday on the perception that Italy’s banks
would fare better, however, the bank has a capital shortfall of $2.6 billion
and the Italy banks are weak as originally thought. Generally, the European bank
stress tests are in line with consensus. The price action in Monte dei Paschi
will be interesting when it begins trading tomorrow.
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