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Interactive DIY Euro Bank Stress Test

Tyler Durden's picture




 

To all who can't wait for the next European bailout FT rumor that ramps the market 30 minutes before close (only to be completely refuted by Europe itself 30 minutes after that but by then nobody will care), which last night turned out to be speculation of a third and certainly not final version of the joke that is the stress test, here is your chance to run and execute your very own interactive European stress test and not have to wait for the conflicted European media to tell you the outcome. That said, we could argue that Reuters, which created this test, may have been a little optimistic, for the simple reason that assuming a scenario that sees 100% writedowns on all PIIGS bonds, and assuming a 2% Tier 1 capital target, sees just 46 banks failing the "test" with a €257 billion capital deficiency. So as cool as it is, Reuters failed the simplest sniff test, as somehow the apocalypse scenario of a complete pan-European wipeout sees just a quarter of a trillion in capital needed, when in reality every bank in Europe would be completely insolvent. Still, it is fun to play around with. For a few minutes...

h/t Philip

 

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Thu, 10/06/2011 - 11:51 | 1745967 LawsofPhysics
LawsofPhysics's picture

Show me the (lack of) money!  Excuse me I need to exit some positions and hedge accordingly.

Thu, 10/06/2011 - 12:53 | 1746292 Ahmeexnal
Ahmeexnal's picture

Things at UBS ain't getting any better:

http://www.tdg.ch/actu/economie/fraude-ubs-depart-chef-banque-investisse...

 

Maybe I should pull out what's left on that ubs acct.

 

And while the ship burns, the swiss are happily distracted with other more important issues:

http://www.tdg.ch/actu/suisse/galeries/election-miss-2011

Thu, 10/06/2011 - 13:44 | 1746524 Shvanztanz
Shvanztanz's picture

I wish I could give you more than one up at a time, but you might get the wrong idea.

1 for the info

1 more for the camera angle on the picture of Swiss Miss, I mean Miss Swiss.

Thu, 10/06/2011 - 11:50 | 1745970 Fips_OnTheSpot
Fips_OnTheSpot's picture

The next time I hear "stress test", I am gonna puke.

Thu, 10/06/2011 - 11:58 | 1746008 Thomas
Thomas's picture

One of the many big lies. My fear is that at some point in the future we will be beating bankers to death with clubs. That will be the moment in history when we are at great risk of ramping it up a notch and doing something stupid.

Thu, 10/06/2011 - 12:11 | 1746079 Fips_OnTheSpot
Fips_OnTheSpot's picture

My main business is IT - where "stress test" is a common scenario. And after 20 years of experience I can tell: blatant lie! It's all "sunny weather stress". Hitting reality the tested object fails due to "unforseen circumstances".

Hint: the Tests 1+2 *especially* excluded a greek default.

Thu, 10/06/2011 - 13:14 | 1746390 AldousHuxley
AldousHuxley's picture

Accounting business is no different. Depends whose paying the bill.

 

Accounting job interview question:

Interviewer: What is the projected revenue for company XYZ?

Canidate who got the job: Well, what do you want it to be?

Thu, 10/06/2011 - 12:39 | 1746231 Central Wanker
Central Wanker's picture

STRESS TEST!

Thu, 10/06/2011 - 11:51 | 1745971 sulfur
sulfur's picture

another stress test...damn their pr guys are geniuses

Thu, 10/06/2011 - 11:53 | 1745975 DormRoom
DormRoom's picture

...

Thu, 10/06/2011 - 11:56 | 1745999 PaperBear
PaperBear's picture

No SocGen ?

Thu, 10/06/2011 - 12:48 | 1746271 socratesplus
socratesplus's picture

right, and dexia would nee only 10B euro...

Thu, 10/06/2011 - 11:57 | 1746011 Miss Expectations
Miss Expectations's picture

I've heard stories where a rigorous enough stress test can, in and of itself, kill you.

Thu, 10/06/2011 - 12:06 | 1746049 Nascent_Variable
Nascent_Variable's picture

With a large enough capital shortfall, the survival rate of every bank drops to zero.

Thu, 10/06/2011 - 11:58 | 1746013 Racer
Racer's picture

MS not doing too well today... oops, stupid yahoo had red for up!

Thu, 10/06/2011 - 11:58 | 1746015 rambler6421
rambler6421's picture

So why is the stock market up?

Thu, 10/06/2011 - 12:17 | 1746102 adr
adr's picture

Because the more it looks like a total bank collapse the more likely governments will throw a ton of money at the situation in a vain attempt to fix it.

It worked out great for bankers the last time. Instead of joining the unemployment line they all got new yachts and 15k sq ft homes. 

The greatest thing for them is equity inflation because the top 1% owns the largest percentage of stock and equity inflation has surpassed price inflation for a long time. $8 a gallon gas doesn't mean anything to you if your shares of stock quintuple. I mean hell a $10k investemnt in a few stocks during march 2009 could have turned you into a millionare. Think about a guy with a few billion to invest.

The only thing that derails the plan is weimar style hyperinflation $100 million doesn't mean much if a cup of coffee costs $1 million.

Thu, 10/06/2011 - 12:01 | 1746025 Caviar Emptor
Caviar Emptor's picture

I think we've reached a crucial turn: nationalization is not at all the same story as bailout.

It's the difference between being given more credit, time and freedom and none of those things. And once it's seen as the sensible and convenient thing to do it will spread. 

It signals that a political solution wins out over faith that free-markets can right themselves. And it signals final loss of faith in banks and their ability to manage their insolvency. It also measn no return to free-wheeling ways any time for a long, long time and it's a victory for the Occupy Wall Street crowd

Thu, 10/06/2011 - 12:20 | 1746111 adr
adr's picture

and massive centralized government control has worked out so well over the course of human history.

Thu, 10/06/2011 - 12:27 | 1746166 Caviar Emptor
Caviar Emptor's picture

I'm not an advocate, just the messenger. When you play with fire as the banks did before 2008, you can get burned in a major way. One should never underestimate that throughout history, centralized power increases when chaos prevails in the economy

Thu, 10/06/2011 - 12:21 | 1746120 Last_2_Sense
Last_2_Sense's picture

Victory will not be declared until the federal reserve bank and the practice of fractional lending is a distant memory. When we can look back and say "remember all those dumb years we paid intrest to that sneaky group of central bankers and all they did was print and then lend us back our own money?" then it will be over. No a world ran by bankers is NOT preferable, we are dead if we don't fight and win this one, so if we die fighting we havent lost anything.

Thu, 10/06/2011 - 12:24 | 1746127 disabledvet
disabledvet's picture

YESSSSS. And now you've only begun your journey young grasshopper. This site is still not producing the dismantling of the European union in a rational way and thus fails to explain the obvious holes in their own theories. Wall Street has already "gotten it" and is proceeding accordingly. Avoid the media sensationalism presented/not presented here and use "the simple side of our mind" and you'll see not just how obvious what is going on but where it is even more obviously leading to. No one is "hanging by a thread" to coin a phrase on this. It's as simple as pointing out "in the USA the government took equity stakes in the banks" and proceed.

Thu, 10/06/2011 - 12:02 | 1746033 Dick Darlington
Dick Darlington's picture

I can see NovaCaixaGalicia on the list.

Here's a little update how that GREAT bank is doing nowdays...

http://www.elpais.com/articulo/english/Novacaixagalicia/makes/scandalous...

Thu, 10/06/2011 - 12:03 | 1746036 cbxer55
cbxer55's picture

High Frequency Traders? Gee, who'da thunk it.

Thu, 10/06/2011 - 12:03 | 1746037 Bold Eagle
Bold Eagle's picture

Haha - even with no haircuts 42 banks will fail.

Thu, 10/06/2011 - 20:30 | 1748070 o2sd
o2sd's picture

Not if you lower the Tier 1 capital to 4.8%, then it's all good. See, the problem is those pesky government regulations. If the banks were allowed to increase their leverage to say .... 99 times ... then all these problems would simply go away. Asset reflation could resume, house prices would go up, mini-golf scores would go down.

;)

 

Thu, 10/06/2011 - 12:04 | 1746042 Racer
Racer's picture

How come the UK can find money to do QE for billions of ££££, yet at the same time squeeze the people and tell them that cuts have to be made?

Thu, 10/06/2011 - 12:05 | 1746043 Caviar Emptor
Caviar Emptor's picture

Will the US Gov nationalize BAC now that Dexia's nationalization has been cheered? 

Thu, 10/06/2011 - 12:20 | 1746116 Schmuck Raker
Schmuck Raker's picture

Nope. Nothing wrong with BAC. At least until after November 2012.

Thu, 10/06/2011 - 12:28 | 1746176 disabledvet
disabledvet's picture

Good question though. Already been brought up on Fast Money actually..OH SO BRIEFLY I might add. I imagine there's an interest or two involved in that one.

Thu, 10/06/2011 - 12:05 | 1746045 Seasmoke
Seasmoke's picture

6 banks worse off than Dexia.....that cant be good

Thu, 10/06/2011 - 12:08 | 1746058 Racer
Racer's picture

Can't be good for the people, for the stock market it is great news.... it will soar because more junk offloaded to the sheeple

Thu, 10/06/2011 - 12:06 | 1746048 YesWeKahn
YesWeKahn's picture

Stock market rallied on this. This is nothing.

Thu, 10/06/2011 - 12:08 | 1746057 poydras
poydras's picture

When you peg haircuts for all countries at 100, the number is 668.  That seems a bit low.

Thu, 10/06/2011 - 12:13 | 1746088 prains
prains's picture

It's times like these that I ask myself "What would Sarah have done?". There must be some kind of Gucci-Judaean homily that

would have worked to quell the fear in these troubling times. Her effective vice presidential leadership would have been of great benefit during these dark days.........dang it.

Thu, 10/06/2011 - 12:14 | 1746091 catacl1sm
catacl1sm's picture

Looks like we just tested tops in DOW and NASDAQ. Bears are on now.

Thu, 10/06/2011 - 12:19 | 1746106 J 457
J 457's picture

Scary stuff. If mainstream media reported this there would be a run on global banks.

Thu, 10/06/2011 - 12:19 | 1746107 NEOSERF
NEOSERF's picture

What is interesting that if no one is going to require these banks to have Tier 1 capital up around 8% then relatively few banks will fail the test (and failing the test is different than failing).  History has shown that all the EU, ECB etc "rules" have been thrown out the window so as to advance the farce and this will be no different...stress tests are NOT meant to show area to be fixed but conversely to try to convince capital markets that all is okay...thus the test fails before it is given.

Thu, 10/06/2011 - 12:32 | 1746199 disabledvet
disabledvet's picture

And yet ZH is surprised the market rallies. Why?

Thu, 10/06/2011 - 12:19 | 1746108 M.B. Drapier
M.B. Drapier's picture

So Allied Irish Bank and Bank of Ireland would not be ... in need of additional capital in the event of a 100% haircut on Irish sovereign debt? Yes, I can see shortcomings in this model all right.

Thu, 10/06/2011 - 16:08 | 1747179 THE DORK OF CORK
THE DORK OF CORK's picture

Yeah I went straight to that alright - but how much Irish sov debt do they really hold ? - not zero but not a huge amount  either I gather.

Although Of course they would not exist without the Irish state - very strange euro days but those banks have form.

It all goes back to the strange seniority of bank deposits to sov debt in the euro system I guess.

Or maybe the simulation is just flawed.

 

Thu, 10/06/2011 - 17:31 | 1747588 M.B. Drapier
M.B. Drapier's picture

What about all those NAMAbonds they repo at the ECB? Those are really Irish sov. debt.

Thu, 10/06/2011 - 17:50 | 1747648 THE DORK OF CORK
THE DORK OF CORK's picture

Jesus , would you believe it I forgot about those little things - I am getting senile or maybe I have just seen too much action for a Dork.

Bond Shock - I think they call it , I have got the thousand yard stare now as well , its hopeless hopeless I tell you.

 

 

Thu, 10/06/2011 - 21:14 | 1748175 Auroch
Auroch's picture

Well technically AIB borrows from ECB with Nama IGB's as collateral.

I guess IGB default would then hurt ECB (not on the stress test list ;) ...

Collateral damage.

They were accepting all kinds of junk as collateral a while back. All the toxic junk. I wonder who gets title at the end ? ...

Thu, 10/06/2011 - 12:20 | 1746110 kaiserhoff
kaiserhoff's picture

This seems to be a simplistic, single event simulator.  It therefore ignores a few items like counter-party risk, contagion, market reaction, incentives, risk aversion, etc.

One big fail brings the ponzi down.  That's why our dictators are shitting bricks.

Thu, 10/06/2011 - 12:22 | 1746130 Caviar Emptor
Caviar Emptor's picture

Just wait till Belgium pulls an Iceland and won't honor bets by US banks. Because now it really is the taxpayer money

Thu, 10/06/2011 - 12:22 | 1746136 adr
adr's picture

but I thought I'll buy you debt if you'll buy mine was a sound business strategy.

Thu, 10/06/2011 - 12:23 | 1746139 nyse
nyse's picture

Yeah, seems light... I would think that full melt down would require much more than 0.25T euros, but what do I know.

Thu, 10/06/2011 - 12:23 | 1746141 topcallingtroll
topcallingtroll's picture

Europe is dead for the next twenty years.

You wanna make some money?
Start dollar cost averaging into brazil now.
In five years you will be so thankful for this advice you will let me have ypur wife or daughter for an evening.

Brazil has the cohesiveness and determination of china so it is not india. It is a fairly honest and open place, so it is not russia, china, nor India.
It has a robust consumer who spends freely but in little debt. Plenty of natural resources. Little government debt.

Did you see the dividend? It will be a wild, volatile ride, but it is the superbric. Dollar cost average every cent you have over the next five years. Do not diversify. Diversification is for pussies.

Thu, 10/06/2011 - 13:05 | 1746344 Ahmeexnal
Ahmeexnal's picture

Brazil is ruled by a marxist.  It has a real estate bubble. And that little government debt you talk about....not true. Not now, and certainly not in 5 years time.

Thu, 10/06/2011 - 12:27 | 1746169 shortus cynicus
shortus cynicus's picture

Who cares.

Simply math tells, that all banks are in some point of the future BY DEFINITION INSOLVENT.

Thu, 10/06/2011 - 12:31 | 1746197 NO1HOME
NO1HOME's picture

The Artisan/ Propaganda Class Citizen will have sway in awakening the Wetiko to the revolution.

 

http://www.youtube.com/watch?v=MlG5u4vb_FA&feature=youtube_gdata_player

Thu, 10/06/2011 - 12:36 | 1746216 Dick Darlington
Thu, 10/06/2011 - 13:09 | 1746359 Stuck on Zero
Stuck on Zero's picture

"It's essential to do non-destructive testing of banks." - TPTB

Thu, 10/06/2011 - 13:22 | 1746419 kote
kote's picture

So if all of the PIIGS fail with 100% haircuts, only 257B EUR is needed to recapitalize the banks?  That's less than is in the EFSF.

Am I missing something here?

Thu, 10/06/2011 - 13:52 | 1746562 jmcadg
jmcadg's picture

And BNP Paribas and Credit Agricole? What about the UK Banks, I know they are not in the Euro, but they're in the EU?

Thu, 10/06/2011 - 13:58 | 1746580 Bob Sacamano
Bob Sacamano's picture

Notably the big exposure is with Spain and Italy and to a lesser extent Greece.  Ireland and Portugal are rounding errors. 

Wed, 10/12/2011 - 09:49 | 1765315 karmete
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