The banks have passed the tests of soundness probably followed
Sunday, July 25th, 2010So few banks have failed this test of strength by 91 European institutions passed that investors should focus on groups which narrowly passed the test when markets open Monday.
Only seven European banks have failed these tests, including five Spanish settlements, and may need to raise 3.5 billion euros of capital, significantly less than expected.
However, quality testing, to assess the resilience of banks to a new recession over the next two years, has been criticized, including some judging too easy.
The results of these tests has also been somewhat overshadowed by a plethora of data on European economies suggesting that banks may face less severe economic pressures and defects on smaller loans previously imagined.
Accordingly, investors should make their own judgments on a case by case, largely due to additional data from tests such as those for the portfolios of sovereign debt, to determine what could be the next sector weaknesses.
QUESTIONS ON THE SEVERITY OF SELECTED SCENARIOS
"With so few banks have failed, investors will question whether the economic scenarios have been sufficiently severe," said Jon Peace, an analyst at Nomura.
"It is natural for investors to consider the margin with which banks have gone," he adds, citing the large margin of success of Scandinavian and British institutions, while banks Greek, Spanish and Italian 's have come out with more difficulty.
Then he was asked banks to manage to maintain a solvency ratio of less than 6% to pass the test, Sept. 10 institutions reported a Tier 1 ratio between only 6 and 7%.
Among these facilities include Deutsche Postbank, Piraeus Bank, Allied Irish Banks, Monte dei Paschi di Siena, Banca UBI, Bankinter and eight small Spanish settlements.
If an objective test was to facilitate the financing contracts with banks recently met with difficulties in this area, schools still considered too risky could nevertheless continue to have problems, except to raise more capital.
"History is not necessarily complete, and if financing costs do not improve for some banks, then we would not be surprised to see additional resistance tests (carried out) by some central banks to future, "warns Jon Peace of Nomura.
As investors take position on the results of resistance testing Monday at the opening of markets, central bank governors and heads of Supervisors will meet in Switzerland to discuss the reform proposals on the strengthening of the capital own banks.
But after their success in tests of strength, European banks may find it difficult to argue that they can apply a stricter financial regulation.
"Banks are ready to begin implementing the new rules are necessary to strengthen the capital reserves and liquidity management of banks," also told Reuters Insider, after the publication of results of resistance testing, Vitor Constancio, Vice-President of the ECB.