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One In Six Banks Expected To Fail EU-Wide Stress Tests

Tyler Durden's picture





 

The first piece of red herring news out of Europe is already on the tape, after Reuters reports that 15 out of 91 banks are expected to fail the second round of stress tests: "Up to one in six European banks is set to fail an EU-wide financial health check, according to euro zone sources close to the stress-testing, as officials scramble to set up backstops for those at risk. Euro zone sources said the European Banking Authority is set to announce within weeks that between 10 and 15 of the 91 banks being tested had failed the tests, with casualties expected in Greece, Germany, Portugal and Spain. In the drive to ensure the credibility of the bank assessments, the European Banking Authority (EBA), which runs the tests and the European Central Bank, which sets the macroeconomic scenarios, are pushing for a higher number of banks to fail than last year's seven. "How many do we expect to fail? I would say 10 to 15," said one senior euro zone central banking source." Of course, the reason why this is total non-news is that while the EBA will huff and puff, the end result, just like last year, will be absolutely no failures, as Europe has no failsafe mechanisms to deal with the aftereffects of a bank failure chain reaction. Expect futures, which dipped briefly on this news to more than rebound, as this merely confirms that the ECB will inject even more money to keep the SS Ponzi afloat for a few more months.

More:

The EBA wants the number of banks that do not pass the tests to be around that level to show the examinations are serious, said a second source, adding that the authority did not want to push for more, for fear it could spark panic and intensify the euro zone's debt crisis.

"In order to demonstrate that it is credible, the EBA would need to show that the number of bank failures is significant, without being substantial," said the source. "A number in the teens is about right."

In the meantime, according to a draft French proposal, there are currently two Greek debt "restructuring" proposal options:

  • First option is 30-year financing to Greece with principal guaranteed by Special Purpose Vehicle, according to draft French proposal
  • Second option is for 5-year Greek government bonds with interest rate of 5.5%, according to draft French proposal

Or, in other words, an MLEC resurrection (as discussed yesterday), or a rollover with haircut. The problem is that according to the rating agencies, both are events of default, which is game over for the ECB.

 


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Tue, 06/28/2011 - 07:51 | Link to Comment qussl3
qussl3's picture

Whats the over under on the ECB raising rates in Jul?

JCT is talking himself into a corner, if he isnt careful he'll blow up Spain all on his own.

Tue, 06/28/2011 - 07:56 | Link to Comment oogs66
oogs66's picture

didn't the Irish banks pass the last ones?  :D

Tue, 06/28/2011 - 07:58 | Link to Comment Cassandra Syndrome
Cassandra Syndrome's picture

Yep, with flying colours. Some stress test, the treadmill must have been going at 0.05 mph for the stinking rancid institutes.

Tue, 06/28/2011 - 07:56 | Link to Comment Cassandra Syndrome
Cassandra Syndrome's picture

In other news 5 out of 6 EU Banks massage their accounts.

Tue, 06/28/2011 - 07:59 | Link to Comment hugovanderbubble
hugovanderbubble's picture

VAn Rompuy Please Resign what a miserable guy

Tue, 06/28/2011 - 08:25 | Link to Comment TwoShortPlanks
Tue, 06/28/2011 - 08:00 | Link to Comment squexx
squexx's picture

I wonder how much of this mess China is willing to bail out?!?

Tue, 06/28/2011 - 08:03 | Link to Comment challenger78
challenger78's picture

some banks failing the stress tests is not a big deal, they will just capitalise more. That's the whole purpose of the tests, to identify weaknesses and correct them.

Regarding the rating agencies, it is apparent by now that they are not impartial and EU has different point of view than them compared to voluntary rollover of debt, hence the announcement yesterday of Europe with intention of establishing their own credit rating agency. Problem solved.

All these EU bearish comments are about to get many people burned when Greece passes the austerity plan tomorrow... trade safe.

Tue, 06/28/2011 - 07:58 | Link to Comment hugovanderbubble
hugovanderbubble's picture

Protectionism = Avoid Illegal Chinese Competence.

Tue, 06/28/2011 - 08:05 | Link to Comment Bohemian Clubber
Bohemian Clubber's picture

First round there were no troubled banks and 6 months later the SHTF, haha second round they take directly 10 banks out of 91 for more credibility. This test must be very technical. Credibility is a bitch

 

Tue, 06/28/2011 - 08:09 | Link to Comment Captain Benny
Captain Benny's picture

The Greeks should just go the full on default route.  Inflation will suck initially, but it'll save them from having their land stolen from under their own feet.

Tue, 06/28/2011 - 08:22 | Link to Comment scratch_and_sniff
scratch_and_sniff's picture

I heard the tests themselves were "backfitted", i.e they choose 15 or so banks and designed tests that would fail them banks, and so, no others. I suppose this seems more credible to them than letting an independent test trash them all...

 

someone is trying their damned hardest to keep the euro up, they must have spunked a few quid by now.

Tue, 06/28/2011 - 08:29 | Link to Comment Widowmaker
Widowmaker's picture

So, 5 in 6 banks expected to pass the fascism-first test?

Tue, 06/28/2011 - 08:46 | Link to Comment Reptil
Reptil's picture

Ok, WHICH ONES!? WTF is this kind of a "transparent" POS from the EBA?!

Wed, 06/29/2011 - 03:11 | Link to Comment Urban Redneck
Urban Redneck's picture

The problem is the depositor insurance in the Eurozone is done at the national level (same as the budget) but the money printing and bailouts can only be done at the ECB/IMF level.   If the failure of an important bank turns into a bank run within a country, then there is a very real chance of a sovereign failure, since Deposit Insurance is only capitalized as a fractional reserve of a fractional reserve.

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