http://www.economist.com/news/business-and-finance/21628422-europes-banks-have-been-probed-some-have-been-found-wanting-who-stressful-tests
Europe recently executed a new plan to stress test it's banks to detect potential failures of the system.
In Italy 9 such banks failed and 16 others across southern Europe also failed. As a result of this test these banks will have to reclassify loans and raise more money. They are still trying to figure out exactly how the markets will react to potential lack of trust in some banks.
Currently the entirety of the European union is being held up in value by Germany's productivity, so it is good to see that (as far as I can tell from the article) no banks in Germany failed the stress test.
Hopefully the next time stress testing occurs less failures will arise.
I think if economies are going to stress test their banks they should take extra measures not to create a lack of trust in the banks. Expectations can sometimes cause the events to actually happen. If people are scared banks will fail they will remove their money, potentially causing banks to fail. Scaring people about bank failure is very risky business, so if central banks want to do this they should be careful to ensure people these are extreme tests that aren't likely to happen.
ReplyDeleteI believe that this great test for the European banks on how to deal with current economic stress. It's shocking that some banks still aren't able to respond effectively with the tests. If the trend continues and the next test is for real, Germany may not be able to help. This could lead to a double dip recession as some economists have already predicted.
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