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 handle any further shocks. After testing, seven major banks in Europe were shown to be too weak to deal with anything else if more crisis’ were to appear. Some did better than others within the European Union Bloc that said they’d help with the Greek debt crisis. However, the seven that did not meet capital needs were from 91 banks which were tested.
The seven banks
The Wall Street Journal reports that these banks were Hypo Real Estate Holding from Germany, ATEBank in Greece, and Unnim, Espiga, Diada, CajaSur, and Banka Civica. None of the seven banks could keep enough cash around to represent 6 percent of the worth of their total assets. The onus behind the tests was to make sure the banking sector could withstand any more shocks to the European financial system, in case one or more governments defaulted on any debt that they held.
Taking precautions
Stress tests like this have to be exactly correct. The idea is to restore confidence among investors and lending institutions so that normal lending and lending between banks will resume. The New York Times reports that the European Central Bank wants to keep away from bailout loans so it can start lending again. Nobody would trust results if they were to relaxed. Things might appear worse than they are with a test that is too strict.
More Euro loans in the Euro Zone
The European Union is credit restrained and will continue to be until the Greek crisis is fixed. The Euro had been valued lower against the dollar as a result of the ongoing turmoil, but recent uncertainty of U.S. recovery is leading to the dollar beginning to slip slightly.
Additional info at these websites
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
