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Eurostress hangover

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Well, the Saturday hot spot forecast is panning out, patchily.

The market is doing its own stress test calculations and coming up with radically different answers: JP Morgan thinks 54 banks fail their version of the tests. Barcap is picking at the funding mechanism that would be needed if there was ‘real’ stress, beyond that  envisaged in the undemanding official scenarios.

There is official moaning about non-revelation of sovereign exposures by some banks. FT:

European regulators have accused Germany and its banks of reneging on a deal to publish full details of sovereign debt holdings, as part of the four-month-long stress test exercise of the country’s banking sector.

In an interview with the Financial Times, Arnoud Vossen, secretary-general of the Committee of European Banking Supervisors, the pan-European banks regulator, said: “We agreed with all supervisory authorities and with the banks in the exercise that there would be a bank-by-bank disclosure of sovereign risks.”

Deutsche, the most conspicuous offender, sagged a bit at the open, but the market will be chary of expressing too much disapproval just now: Deutsche’s quarterly results are due tomorrow. Not much action in ABN-Amro, so maybe they did put their sovereign exposures up, somewhere.

Elsewhere the circularity sovereign stress-> bank stress -> sovereign support is attracting some scrutiny.

All quiet…except Euribor is getting worse

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5 comments

  1. RueTheDay

    I’m not a big Zero Hedge fan, but they do have an interesting analysis up:

    http://www.zerohedge.com/article/applying-basel-iii-tier-1-stress-test-threshold-implies-e26-trillion-assets-39-banks-impaire

    Apparently, if you change the capitalization threshold from the 6% used for the stress test to the Basel III standard of 8%, instead of 7 banks with €246 billion in assets failing you get 39 banks with €2.6 trillion in assets failing.

    It’s pretty clear that the European authorities started with the actual bank data and then backed into the criteria needed to show that the European banks were just fine (allowing a few insignificant banks to get a failing mark to show a smidgen of credibility).

  2. Richard Smith Post author

    Yes – the Austrian writeup they point to isn’t explicit on whether the Basel III *definition* of capital was applied (it’s stricter, and would rule out some instruments that are included in the 6% Tier 1). But it’s some sort of foretaste of the impact of the capital rules (if they don’t get watered down).

  3. Gary Anderson

    I have a question. We know that the NWO financial system features the central banks who are controlled by the world’s biggest banks. I want to know how the hedge funds who short the sovereign debt play into this scheme? Are they part of the scheme or are they the “dark side” rebels against the scheme.

    The house of cards of derivatives are sanctioned by the central banks, but shorting sovereign debt is NOT. So, I need to know how these two seeming antagonists interact and if the central banks play both sides, and actually profit from shorting the sovereign debt, or if they and their big bank counterparts are hurt by this shorting of sovereign debt.

    I don’t want guesses. But please, if anyone really knows, I would appreciate a stab at it.

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