After the Greek debt crisis started to wreak havoc in European financial markets, a series of stress tests were devised to see whether European banks could manage any further shocks. Seven major European banks were tested and failed showing they wouldn’t be able to manage any more problems with the economy. The European Union bloc said it would give aid to the Greek debt crisis although many did better on the test than others. 91 banks were tested with only 7 failing.
The Insufficient Seven
The banks that did not meet the capital requirements were Hypo Real Estate Holding AG in Germany, ATEBank in Greece, and Unnim, Espiga, Diada, CajaSur and Banka Civica, which are all Spanish, according to the Wall Street Journal. All seven banks had troubles keeping enough Tier 1 capital to equal 6 percent of the worth of their assets. The purpose of this was to make sure banks were secure in case the European Financial System had an additional problem, including a government defaulting.
Walking a fine line
The test that is administered has to be perfect. The idea is to restore confidence among investors and lending institutions so that normal lending and lending between banks will resume. The European Central Bank, according to the New York Times, is trying to keep from having to make any more bailout loans to banking institutions and get them to start lending to each other again. If the tests are too lax, nobody will believe the results. If the test is too hard, it could make things look much than they’re.
Lending in the Euro Zone
European lending is constrained, and until the Greek crisis is resolved, the European Union is going to be somewhat credit constrained. The U.S. dollar was being valued as higher than the Euro because of this crisis although the dollar is losing value with the U.S. economy being so unstable.
More info on this topic
Wall Street Journal
online.wsj.com/article/SB10001424052748703294904575384940544522582.html?mod=WSJ_business_LeadStoryRotator
New York Times
nytimes.com/2010/07/24/business/global/24stress.html?pagewanted=1 and amp;ref=business
