The reason we have not been covering this year's iteration of the European stress test closely (and the reason why we will not even mention next year's, if there is a Europe next year) is because it was guaranteed apriori that it would be just as farcical as its original version, and result in glaringly failing institutions in the 91-bank sample tested as "passing." Sure enough, The Independent has just reported that all Irish banks have passed the test "comfortably" - a list that includes such horrors as Bank of Ireland, Allied Irish Banks and Irish Life and Permanent Plc, which even Moody's suggested would have to fail to avoid last year's farce when AIB passed only to have to be bailed out two months later. And with that we can close the book on this year's stress test before it is even released.
From The Independent:
Irish banks are understood to have passed new European stress tests - the results of which will be published today.
The tests on 90 European banks, including Bank of Ireland, Allied Irish Banks and Irish Life & Permanent, will be made public when markets close later.
But market sources told Independent.ie the trio will pass “comfortably.”
The analysis is designed to assess whether the banks would have enough capital to withstand a hypothetical economic shock.
A previous probe was discredited largely because AIB, having passed the test, was two months later found to require €8bn more to keep it afloat.
This round will be more widely watched as confidence needs to be restored in the banking sector against the backdrop of growing financial woes in countries like Greece, Italy and Spain.
Analysts expect between five and 15 European banks to fail the tests with some regional German institutions considered the most vulnerable.
The number of banks was originally 91.
However, German bank Helaba pulled out on this week as part of a dispute the European Banking Authority and it will announce results separately.
Expect a knee jerk reaction higher in the euro, and thus the S&P, once results come out "better" than expected. Our only question is how long will the half-life be before the next round of dumping begins, or said otherwise, how long before everyone "Sells the Farce."