Main focus of Monday, July 26, 2010

Banks seem stress-resistant

84 of 91 banks have passed the stress test for European banks. The German bank Hypo Real Estate, five Spanish savings banks and the Greek Atebank failed the test. The European press admits the high success rate is impressive, but questions whether the stress test will restore the markets' trust.

Tages-Anzeiger - Switzerland

After the first EU-wide stress tests for banks the daily Tages-Anzeiger expresses doubts about just what the results show: "Only 7 of 91 banks tested didn't pass, and their capital requirements are estimated at a modest 3.5 billion euros. Experts had expected a failure rate of some 10 to 15 percent, and necessary capital increases of 40 billion euros or more.The major criticism was and remains: the tests did not simulate the bankruptcy of a euro country. For the tested banks this means that even in a worst-case scenario the write-offs of euro government securities will for the most part be limited in scope. For the politicians this view is entirely coherent because the euro states set up the 750-billion-euro rescue fund precisely to prevent state bankruptcies. Decisive, however, will be whether the financial markets - and above all the banks themselves - agree with the evaluation of politicians and assess the test results as reliable and comprehensible." (25/07/2010)

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Diário Económico - Portugal

No less than 84 of the 91 banks passed the bank stress test. Good news, writes the business paper Diário Económico and recommends the business world to take a similar view: "The European banks must now pass the reality test. We all know how jittery and nervous investors are and how they like to pass their stress on to their environment. So it's not certain that bank shares will skyrocket today. The key question is credibility. … But  there are reasons why Europe's banks performed better than the USA's - starting with timing. We are still in the crisis, true, but the waters have grown calmer than they where when the test was carried out on the other side of the Atlantic. And several European states have already initiated the recapitalisation of some of their banks so that they were able to cut a good figure. This is why the markets should try to see the advantageous aspects and not adopt the journalists' position: the worse the better." (26/07/2010)

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Le Monde - France

Serious doubts have been raised about the reliability of the stress test for banks, but such doubts are unreasonable, writes the daily Le Monde: "The positive stress-test results scored by Europe's major banks have barely been published ... and already criticism is hailing down. ... Does the high success rate compared with the US banks make the test unreliable? Was the scenario not strict enough? Was the grading too lax? The scenario on which the European test was based was structurally tougher than in the US, and based on more difficult circumstances: the Eurozone recession in 2008/2009 followed by a second recession. ... In long denying the reality, Europe itself nourished rumours about possible bank failures. And in so doing it has prevented trust from returning to the financial markets." (24/07/2010)

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