European financial markets began to fail with the Greek debt crisis causing stress tests to be developed to see how European banks could manage more shock. Seven major European banks were tested and failed showing they wouldn’t be able to deal with any more troubles with the economy. Some nations within the European Union bloc that pledged aid in the Greek debt crisis fared better than others. Only 7 out of the 91 tested weren’t able to meet needs.
The Insufficient Seven
The banks that did not meet the capital needs were Hypo Real Estate Holding AG in Germany, ATEBank in Greece, and Unnim, Espiga, Diada, CajaSur and Banka Civica, which are all Spanish, according to the Wall Street Journal. These seven banks were unable to keep enough of Tier 1 capital, or cash reserves equal to 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.
Thin line to walk
Stress tests like these can’t be too stringent nor too lax. The idea is to restore confidence among investors and lending institutions so that normal lending and lending between banks will resume. The European Central Bank, according to the New York Times, is trying to keep from having to make any more bailout loans to banking institutions and get them to start lending to each other again. Not a soul would trust results if they were to relaxed. Things might appear worse than they’re with a test that is too strict.
Lending within the Euro Zone
European lending is constrained, and until the Greek crisis is resolved, the European Union is going to be somewhat credit constrained. 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 details 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
