Wednesday, 7 July 2010

Bank stress tests put EU leaders in the hotspot

The above is a Reuters headline on the potential damage that could be done by how the results of such tests are published. The Spanish want results published on a bank by bank basis but the French and Germans do not. Even with the EU stress lite tests some banks will fail causing a major headache for the EU on 23rd July the publication date. Results will be published in London in the fond hope a little bit of British integrity will rub off on some of these dodgy banks.

Christine Lagarde, the French finance minister wants the methodology and assumptions published before the results as the US did. A bit dangerous when the latest story reveals a 16% to 17% haircut for Greek bonds held by banks, eyewatering, and official recognition of the dodgy state of Greece.

In an analysis of the potential outcome of the tests, assuming the application of stresses such as lower than expected GDP growth and a 10 percent decline in property prices, Swiss bank UBS identified Germany and Spain as two of the major risks.

At the same time the FT reports as I opined that hedge funds and others of their ilk are laying plans to decamp to Switzerland following the new EU regulation. Ah well its not lost what the gnomes get. 

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