Can assessments in Europe repeat the success of those in America?
Saturday 24 July 2010
Europe's chancelleries are clearly hoping that the stress test will result in the same cathartic effect on markets as their US equivalents did in May last year. The turbulence that sparked European banking supervisors into action is worrying everyone.
The American tests saw 10 of the country's biggest 19 banks falling flat on their faces. The 10 were told they needed to find an extra $74.6bn (£48bn) with which to cushion themselves, close to half of which ($33.9bn) was needed by just one lender – Bank of America.
If it looked bad the response was rapid: banks that required extra capital were given just a month to finalise plans to raise it and to get their proposals approved by the regulators.
Many had already begun the work. Bank of America said it would raise the $33.9bn through the sale of assets and other measures, while Citigroup, Morgan Stanley and Wells Fargo said they would issue or exchange shares.
Whether that will happen in Europe is open to some debate. It is also worth noting that the US tests were significantly tougher than their European equivalents. The criteria were broadly similar in that both looked at the impact on banks of GDP coming in at about 3 per cent less than the prevailing forecasts.
The US tests did not cover the effect of a possible sovereign debt crisis. But when the Treasury Department and the Federal Reserve carried them out, the world's economy was significantly weaker than it is today, while the forward projections on which the studies were based were far darker.
The US Treasury Secretary, Timothy Geithner, said at the time that he hoped "that banks are going to be able to get back to the business of banking" after their completion. He more or less got his wish. Europe may not be quite so lucky.
- 1 What marriage would look like if we actually followed the Bible
- 2 If these extraordinarily powerful images of a dead Syrian child washed up on a beach don't change Europe's attitude to refugees, what will?
- 3 The Chinese city where men have 'three girlfriends because there are so many women'
- 4 'Heartbreaking' Syria orphan photo wasn't taken in Syria and not of orphan
- 5 Orthorexia nervosa: How becoming obsessed with healthy eating can lead to malnutrition
Britain to take more refugees as Cameron bows to pressure after more than 250,000 back our campaign
Senior British politicians tell David Cameron: When dead children are being washed up on beaches – it's time to act
Jeremy Corbyn calls Osama bin Laden's killing a 'tragedy' - but was it taken out of context?
If these extraordinarily powerful images of a dead Syrian child washed up on a beach don't change Europe's attitude to refugees, what will?
If you're not already angry about the refugee crisis, here's a history lesson to remind you why you really should be
Make your voice heard: Sign The Independent's petition to welcome refugees
iJobs Money & Business
£16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...
£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...
£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...
£14000 - £16000 per annum: Recruitment Genius: This company was established in...