Was the European bank stress tests a farce? A new financial meltdown?
An interesting topic came up in my Linked In Group. It was asked if the European bank stress tests was generally a farce.
First let’s do a little history. In the peak of the last financial meltdown in 2008-2009, Iceland was given a financial lifeline to avoid default. Two years later, their bond rating have hit a junk status. The government of Iceland say they won’t default but here we are two years later. So what does that mean for governments like Greece or Spain?
Let’s talk about these stress tests the European Central Bank put some of their banks through.
On my Linked In group, Jonathan Bauer said:
What is very strange is that events which have almost occured have been evacutaed of the test:
– No real liquidity crisis as if Central Bank can ever replace money market in case of trust crisis or dysfunction of the interbanking trades
– No defect of sovereign as if the solidest countries of Euro Zone, UE and FMI can mobilize resources and garantees to save such or such country
Konrad Banachewicz said:
1. the number of loopholes (e.g. reporting traded vs held bonds)
2. the fact that all but one Greek banks passed?
No, not really. They just used the American blueprint for a farce like this – and the results will be similar.
this is the greatest questions i’ve seen on this blog so far! no! no i do not. i don’t believe that you can be at the apocalypse 3 months ago watching countries run from the euro like it is a currency on the brink of disaster and now everything is back to ‘ as usual’ -euro at expectation of 1.30+ now?. it actually makes me cringe a little to think where all this bad paper is sitting since apparently no one globally is capable of claiming it and the feds aren’t capable of finding it. it’s still out there. the real tarp never happened and there’s not enough hedge fund cash or balls to take this paper down for the long hall.
deposit duration will become the most important subject for commercial banks for years to come.
Interesting facts if you are into that doom and gloom.