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 Planes go hybrid-electric in important step to greener flight
- 2 Antonio Martin shooting: Police and protesters clash over teenager's death just five miles from Ferguson, Missouri
- 3 British actor Idris Elba cannot star as James Bond because he is black, says shock jock Rush Limbaugh
- 4 Hip hop is both racial and political, and for Iggy Azalea to suggest otherwise is insulting
- 5 Man hospitalised with pneumonia after downing eggnog at office Christmas party
Antonio Martin shooting: Black teenager may have tried to ambush patrolman, says police officer's lawyer
Orphan kangaroos spend Christmas without their parents
Northern Lights above Britain: Stunning Aurora Borealis illuminates Northumberland sky on Christmas Eve
New route to Mars could make manned mission much cheaper and easier
Isis 'did not shoot down Jordan war plane' before capturing pilot, says US
British actor Idris Elba cannot star as James Bond because he is black, says shock jock Rush Limbaugh
Rozanne Duncan: Ukip expels councillor for 'jaw-dropping' comments made in BBC TV interview
Germany anti-Islam protests: 17,000 march on Dresden against 'Islamification of the West'
Ukip member gets into Christmas spirit with Union Flag plea to Santa 'for our country back'
BBC director Danny Cohen: Rising UK antisemitism makes me feel more uncomfortable than ever
Alex Salmond has 'broken his word to the Scottish people' says Scottish Lib Dem leader
iJobs Money & Business
Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...
£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...
£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...
£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...