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ECB Eases European Bank Stress Test By 25%, Lowers Capital Ratio Requirement From 8% to 6%

Tyler Durden's picture





 

First the Volcker Rule was defanged when last night the requirement to offload TruPS CDOs was eliminated, and now here comes Europe where the ECB just lowered the capital requirement for its "stringent" bank stress test (the one where Bankia and Dexia won't pass with flying colors we assume) by 25%. From the wires:

  • ECB SAID TO FAVOR 6% CAPITAL REQUIREMENT IN BANK STRESS TEST
  • ECB SAYS DECISION ON CAPITAL REQUIREMENT NOT YET FORMALLY MADE
  • MAJORITY OF POLICYMAKERS AND TECHNICALS OFFICIALS HAVE REACHED CONSENSUS ON THE BENCHMARK

The final number may in fact be even lower:

  • SMALL NUMBER OF COUNTRIES WANT AN EASIER BENCHMARK AND MAY PRESS FOR COMPROMISE LOWER THAN 6%

Why is this notable? Recall from three short months ago:

The European Central Bank said it will use stricter rules when stress testing banks’ balance sheets next year than it will to study their assets, as it seeks to prove its credentials as the region’s financial supervisor.

 

While the ECB confirmed that it will require lenders to have a capital ratio of 8 percent, what qualifies as capital will change over the course of the three-part assessment, the central bank said in an e-mailed statement. The capital definition applicable on Jan. 1, 2014 will be used for the asset-quality review and the definition in force “at the end of the horizon” of the stress test will be used in that evaluation, it said.

 

Ignazio Angeloni, who is head of the ECB’s financial stability directorate, said today in Frankfurt that officials haven’t yet decided on a timeframe or on details for the stress test. The European Union is gradually phasing in global capital standards known as Basel III, a process which is due to be completed by 2019.

 

“We’ve got a feasible but safe capital cushion of 8 percent,” Angeloni told reporters. “We want the exercise to encompass all the main sources of risk.”

Apparently you don't, but who cares as long as the myth of strong European bank balance sheets is perpetuated. And should the capital requirement be lowered even more, expect politicians and central bankers to bang the drums even louder on just how stable the European financial system is.

Some additional color from Bloomberg on what is becoming a complete farce of a stree test:

The European Central Bank favors requiring banks to show they can retain capital worth 6 percent of their assets when it puts them through a simulated recession later this year, said two euro-area officials with knowledge of the matter.

 

A majority of policy makers and technical officials have reached consensus on the benchmark for the ECB’s stress test, the people said, asking not to be identified as the deliberations aren’t public. The threshold must still be agreed on with the European Banking Authority that coordinates the exams, and a small number of countries wanting an easier benchmark may press for a compromise lower than 6 percent, one of the people said.

 

For the rest of the ECB’s bank balance-sheet review, known as the Comprehensive Assessment, the central bank is using a minimum capital requirement of 8 percent to evaluate lenders’ health under current conditions. That figure was reported by Bloomberg News on Oct. 22 and confirmed by the ECB a day later.

In other words, 8% under "current conditions" except in a "simulated recession" when the ECB will lower its capital needs requirement to 6%. One assumes the "simulated recession" will be different than the all too real recession Europe, and its record high unemployment, are currently in? And also, just when will the ECB expose how many hundreds of billions in bad debt loans the European banking system is currently toiling under?

 


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Wed, 01/15/2014 - 12:46 | Link to Comment knukles
knukles's picture

See!  We toldja so!
It's so fucking great out there, we don't need no stinking capital.

Holy Christ....

 

Revelations,1:1
Nobody needs capital when they have the taxpayers to bail them out!

Wed, 01/15/2014 - 12:53 | Link to Comment USA USA
USA USA's picture

Why bother? The whole thing is going to crash like the tower of shit it is.

Your "Stress Test" does not mean a damn in the real world.

Put your head between your legs and KISS YOUR ASS GOODBYE!

Wed, 01/15/2014 - 13:05 | Link to Comment max2205
max2205's picture

CB got your back...

Wed, 01/15/2014 - 13:29 | Link to Comment boogerbently
boogerbently's picture

They learned from America.

If you can't pass the test, lower the standards.

Thu, 01/16/2014 - 12:06 | Link to Comment Frozen IcQb
Frozen IcQb's picture

Banks are not too big to fail, they’re just too big to save!

There are not enough taxpayers to bail them out.

 

 

Wed, 01/15/2014 - 12:47 | Link to Comment Max Damage
Max Damage's picture

Shows how completely fucked the balance sheets still are

Shows how they cannot raise the capital

Shows how savers, sorry creditors should start shitting themselves for the theft coming soon

Shows how.......

Wed, 01/15/2014 - 12:48 | Link to Comment Winston Churchill
Winston Churchill's picture

They are only levered @ 19:1.

Thats good right ?

As long as you have no bad debts that is.Not like they have any in the

PIIGS, all in recovery.cough cough

Wed, 01/15/2014 - 12:57 | Link to Comment disabledvet
disabledvet's picture

"with resolution determined on a case by case basis." By the time you get to "favorite bank number three" you're out one trillion. They need to start shutting down nuclear reactors. QUICKLY.

Wed, 01/15/2014 - 13:06 | Link to Comment Ghordius
Ghordius's picture

in general it's not good. it depends. on the composition of that balance sheet. Tyler writes: "...as long as the myth of strong European bank balance sheets is perpetuated..."

yet again and again I'm writing here - since that series of articles where ZH was writing about the eurozone "good collateral" dearth - that it depends. and you can't compare the typical USUK bank with the typical eurozone bank. practically different business models

and different balance sheet composition, starting with business loans to non-listed companies, something Anglo-American banks have practically stopped making, compared to eurozone banks. which is also reflects the fact that the whole eurozone economy is less financed through stock and bond markets, and in more private hands, in comparison

but of course Tyler hits the nail on it's head: if the American banks are not restrained too much, the eurozoners won't restrain theirs more than strictly necessary. so it's 6% instead of 8%

note: I'm not writing about megabanks like Deutsche, here

Wed, 01/15/2014 - 12:45 | Link to Comment frankTHE COIN
frankTHE COIN's picture

The Change in the Sofa Cushion will suffice.

Wed, 01/15/2014 - 12:49 | Link to Comment knukles
knukles's picture

I was thinking more like dabbing the cum splooge on Monica's dress with his snot rag.

 

take that cigar outa yer shatch girl, they get soggy and hard to light

Wed, 01/15/2014 - 13:20 | Link to Comment Colonel Klink
Colonel Klink's picture

No one seems to get that Billy boy just liked his Ceeegars with a premoistened tip.

Wed, 01/15/2014 - 12:47 | Link to Comment alphamentalist
alphamentalist's picture

Deutsche Bags

Wed, 01/15/2014 - 12:48 | Link to Comment 101 years and c...
101 years and counting's picture

let me interpret: at 8%, a majority of banks would fail the test.  so, we naturally just lower the bar to pretend a weeee bit more that we're not insolvent.

Wed, 01/15/2014 - 13:05 | Link to Comment ForWhomTheTollBuilds
ForWhomTheTollBuilds's picture

Let me interpret further.  The HFT algos will soon be reading this headline:

 

"Euro banks now in significantly better shape than was thought just one month ago."  

- Markets explode upwards on the news.  

- Everyone on twitter has a laugh at doomers who thought banks wouldnt pass stress tests.  

- Doomers unable to explain their side in only 140 characters.

- And so on...

Wed, 01/15/2014 - 12:48 | Link to Comment Grande Tetons
Grande Tetons's picture

All cans are being kicked down the road. 

Wed, 01/15/2014 - 12:48 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Making things easier for bankers?

< shocker >

Someone had a great comment on the REPO market the other day, this simply indicates to me that there some "liquidity" problems...

Wed, 01/15/2014 - 12:52 | Link to Comment Winston Churchill
Winston Churchill's picture

Only $801bn.

A rounding error in comparison with the $16tn the Fed had to put in last time.

Still not a good sign though.

Wed, 01/15/2014 - 13:06 | Link to Comment seek
seek's picture

Repo, gold, interest rates ... everything is pointing at there being a problem somewhere in the ecosystem big enough to panic people who know about it.

Wed, 01/15/2014 - 13:13 | Link to Comment Winston Churchill
Winston Churchill's picture

The reverse repos point to a 'good 'colateral shortgage for the shadow banking system.

Lest we forget, exactly what caused the crash in 07/08.

Happy days are here again.

Wed, 01/15/2014 - 13:32 | Link to Comment teolawki
teolawki's picture

Bingo.

Wed, 01/15/2014 - 12:51 | Link to Comment Dr. Engali
Dr. Engali's picture

Moar leverage bitchez! BTFD until this pig vaporizes.

Wed, 01/15/2014 - 12:50 | Link to Comment tallen
tallen's picture

Just make it 0% reserves already. Just imagine the wealth creation.

Wed, 01/15/2014 - 13:18 | Link to Comment HoofHearted
HoofHearted's picture

Paulie K, is that you trying to hide behind Janet's skirt? Or is Janet your dream girl? Everyone else has pics of what they consider to be beautiful, so maybe Krugman thinks Mr. Yellen is a real looker...

Wed, 01/15/2014 - 13:30 | Link to Comment 101 years and c...
101 years and counting's picture

everytime i read your posts, i want to vomit.  not from the content, but the picture of that fat cow......

Wed, 01/15/2014 - 12:57 | Link to Comment firstdivision
firstdivision's picture

This will help stabilize the system and prevent future systemic events.

Wed, 01/15/2014 - 12:50 | Link to Comment Max Damage
Max Damage's picture

Who needs capital? CB's just print toilet paper, government robs taxpayers, and jobs done.

Wed, 01/15/2014 - 12:50 | Link to Comment GolfHatesMe
GolfHatesMe's picture

Fuck you MotherFuckers and your stupid Stress Tests, and Studies, WTF.  No one cares at Fucking all.  Just remove any requirements for anything!

Wed, 01/15/2014 - 12:51 | Link to Comment madbraz
madbraz's picture

Ahh, who cares, it's only some 400 billion to 1 trillion Euro shortfall on $40+ trillion in "assets".  Who's counting anyway?  Let's keep gambling for another 10% ramp and another $2 trillion in paper gains in "stawks", why stop, it's not our money anyway.

Wed, 01/15/2014 - 13:16 | Link to Comment SheepDog-One
SheepDog-One's picture

Sure, and bottom line Fed Central Banksters CAN'T lose when it's buying up everything for themselves with completely imaginary money at no cost to them.

Thu, 01/16/2014 - 01:07 | Link to Comment TheReplacement
TheReplacement's picture

It not only is not our money, it's not money at all.  It is debt.  We, the people, can choose how this reset works.  We will need to repudiate all of this debt to the central banks and big banks and to anyone in the 1% as of today.

All that wealth stolen... PSYCH!  Do not pass go.  Do not collect $200 dollars.  Most of them will be lucky to not go to jail.  The few who do though... pity them.  Real prison is hell.

Mind you, a lot of the stolen wealth doesn't actually exist.  It is, again, debt.  Debt isn't something that really exists and can be turned into some other useful thing.  It will just cease to exist.  We won't really get that back.  We'll just get back to zero.  With the right lessons learned, that would be a great result.

Wed, 01/15/2014 - 12:51 | Link to Comment NoDebt
NoDebt's picture

They're makign it up as they go along and relying on bad/false/manipulated data to measure it with.

So, basically, expect no bad news AT ALL up until something important breaks.

Wed, 01/15/2014 - 12:58 | Link to Comment disabledvet
disabledvet's picture

yep!

Wed, 01/15/2014 - 13:01 | Link to Comment madbraz
madbraz's picture

A 15 year old on crack, drunk, behind a steering wheel doing 100mph is more responsible than any ECB, Fed Reserve officials the corrupt politicians behind them.  I wish they all died and rid the world of their despicable presence.

Wed, 01/15/2014 - 13:06 | Link to Comment Yen Cross
Yen Cross's picture

   Look for a surge in reverse REPOs when said 'Kabuki Theatre' ensues.

Wed, 01/15/2014 - 13:08 | Link to Comment Kaiser Sousa
Kaiser Sousa's picture

I     N   S    O    L    V    E   N     T !!!!!!!!!!!

Wed, 01/15/2014 - 13:22 | Link to Comment Colonel Klink
Colonel Klink's picture

Yep, they keep trying to chant that it's a liquidity crisis.  The truth is, it's a SOLVENCY crisis!!!

Oops bitchez!

Wed, 01/15/2014 - 13:17 | Link to Comment Ourrulersknowbest
Ourrulersknowbest's picture

Well I for one am happy.
Can we all not just get along.
Nothing to see here.
Won't anybody think of the children.????
The dudes with the nice suits got this covered,so no need for any of the sheeples to leave Facebook to see if maybe there might be a bit of trouble brewing in them thar far off financial hills.
I am close to the point where I just throw all my skeptisim/cynicism in the fuckin toilet and join the happy dumb duck masses.how long will this bullshit go on.
I mean holy fuck,when you think the thieving cunts have gone too far,they just up the ante ,and we all as citizens FUCKIN LET them.
Fuck it...

Wed, 01/15/2014 - 13:37 | Link to Comment teolawki
teolawki's picture

If you like your Facebook, you can keep your Facebook.

Wed, 01/15/2014 - 13:30 | Link to Comment Yardfarmer
Yardfarmer's picture

these statestical womanipulations are conceived to accomodate the insupportable burden of fatal toxicity of assets corroding balance sheets and their accompanying counter party derivatives. oddly enough quite similar to the racheting down of "safe" levels of radiation to likewise accomodate the rapid proliferation of radiocactive isotopes into infinity being generated by the Nippon nuclear nightmare. as we witness the international financial "meltdown" we have a parallel and very real (3?) nuclear reactor core meltdowns presently devastating the Pacific and raining poison across the Northern hemisphere. rather than maintaining any absolute standards of rational understanding we have an only relative, situational false metric on a sliding scale adjusted to the grotesque dislocations of the abberant. if you include the preponderant mental pollution of propaganda emanating from putative POTUS, i think we are approaching a saturation point of such virulent human induced mental, moral, and material pestilence unseen at any time previous on the planet. lordy have mercy! "the center cannot hold and mere anarchy is loosed upon the world"

Wed, 01/15/2014 - 13:21 | Link to Comment Rising Sun
Rising Sun's picture

Let's call this Basel IV

 

Therefore,

Basel IV = Basel III + fist fucking the herd

 

 

Wed, 01/15/2014 - 13:23 | Link to Comment teolawki
teolawki's picture

No problem. Look at all the money good collateral backstopping all this.

Wed, 01/15/2014 - 18:09 | Link to Comment smacker
smacker's picture

I'm not a violent man, but I like your way of dealing with political slimeballs ;-)

Wed, 01/15/2014 - 13:39 | Link to Comment Yen Cross
Yen Cross's picture

  O/T but banking related. Wells Fargo must be really hard up. Looking to be BTC middleman and now this.

  » Wells Fargo Denies Plan to Charge Customers For Domestic Deposits Alex Jones' Infowars: There's a war on for your mind!

Wed, 01/15/2014 - 13:53 | Link to Comment adonisdemilo
adonisdemilo's picture

I wouldn't trust that lot of lying scamsters with ANY of my money.

They've probably taken soundings already and realised NOT ONE bloody bank would pass the test at 8%.

In tried and well practised E U POLITICS  they simply change the rules.

FUCK YOU.

Wed, 01/15/2014 - 13:59 | Link to Comment NeedleDickTheBu...
NeedleDickTheBugFucker's picture

Move the goal posts if you kicker has a weak leg.

Wed, 01/15/2014 - 14:29 | Link to Comment ejmoosa
ejmoosa's picture

The EASY button just keeps getting more and more inclusive.

 

They'll never be able to exit their EASY money policies....

Wed, 01/15/2014 - 18:02 | Link to Comment No Euros please...
No Euros please we&#039;re British's picture

Don't know where you get your information from, but I thought the ECB had totally weaseled out and settled for 3%.

http://finance.yahoo.com/news/regulators-ease-bank-rule-help-122106368.html

Wed, 01/15/2014 - 18:08 | Link to Comment smacker
smacker's picture

Some slight confusion methinks on what the bank capitalisation %age is:

http://larouchepac.com/print/29492

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