Makes you wonder – what kind of test is that if out of 91 not exactly rude-health institutions, only one is expected to fail? At an expected 99% success rate, the EU stress test is clearly designed to put a PR spin on banking sector shares, bonds and interbank credit markets.
The only sticky part is that if any of the ‘passed’ banks fail in the near future, the investors should be able to sue the EU for any losses incurred. You see, the EU stress test is designed – at least in theory – to provide important markets-relevant information to investors. If so, someone should be liable for the quality of the test. Had the EU authorities given this a thought?
The test is farcical. And you don’t need to see the results to know this much. European banks are set minimum requirement of 6% Tier 1 capital ratio. This is the number being tested. But the
FT blogs' Tracy Alloway reported today on what the markets think. The article (linked here) reports that there has been a 50% or more rise in the short positions held against a number of Eurozone banks.
Funny thing, relating to the stress tests, is that a number of public officials – from