Errors Found In The ECB's "Confidence-Boosting" Stress Test

Just when you thought the humor out of the central bank that just released a stress test whose adverse scenario did not even assume the most likely Eurozone outcome, i.e., deflation, couldn't get any better, moments ago we learned that the test, which was supposed to restore confidence in Europe's banking system and in the oversight and regulatory abilities of Europe's central bank, had "errors and inconsistencies" which forced the ECB to "briefly remove from its website" the results of Italy's most insolvent bank, Monte Paschi, "after discovering an error in its key capital ratio", a bank which based on the ECB's (faulty?) failure assessment was halted countless times earlier today after crashing so hard the regulator had to ban selling it short. Again.

The WSJ tries to put some lipstick on this latest Snafu by the former Goldmanite in charge of Europe's money printer :

While the tests have been going on since last year, European officials were scrambling until the last minute to finalize the data. On Sunday morning, barely an hour before the results were due to be released, the EBA official in charge of the stress-test process was still scrambling to rubber stamp the numbers, causing him to show up 10 minutes late to a briefing with journalists.


Shortly after the results were published, ECB officials detected an error in the 2013 capital ratio of Monte dei Paschi, Italy’s third-largest bank, according to a person familiar with the matter. The error, on the first page of a template posted on the ECB website, was important because Monte dei Paschi was the worst performer in the stress tests and therefore was at the center of investor attention Sunday.


After discovering the error, ECB officials briefly removed Monte dei Paschi’s files from its website, according to the person familiar with the matter, who described the problem as an isolated “data-processing error.” The corrected files were republished a short time later. But their temporary removal drew the attention of investors, some of whom privately expressed frustration that the ECB had altered the figures without explaining what had changed.

Then there is Deutsche Bank, the bank best known for losing not one but two internal legal advisors in the past year to suicide. Actually, and somewhat ironically, the DB "error" is related to precisely that:

Deutsche Bank, facing a wide range of lawsuits and government investigations, has been a focal point of such concerns, and so its litigation-expense figure was being closely watched.


The EBA pegged Deutsche Bank’s litigation costs for the nine months of 2014 at €470 million, which was the figure Deutsche Bank reported for the first six months of the year. The ECB’s figure was nearly triple that, at about €1.4 billion.


The reasons for the discrepancy, which didn’t affect Deutsche Bank’s capital ratio, aren’t clear.


An ECB spokeswoman said it used data covering Deutsche Bank’s litigation expenses for the first nine months of the year, adding the data was provided by banks to the national supervisors. An EBA spokeswoman said the agency used data that was provided to it by the ECB. A Deutsche Bank spokesman declined to comment.

It gets better:

Results of a review of Polish banks’ balance sheets were left out of the tests due to the late submission of data. And the ECB and the European Banking Authority, which were jointly overseeing the testing process, came up with drastically different figures for an important Deutsche Bank AG data point.


But don't lose faith, or confidence, in Europe's confidence building exercise, here's why: "The issues appear to be isolated and, unlike in previous iterations of the European stress tests, don’t call into question the overall credibility of the exercise, according to analysts and other experts. They said some mistakes are inevitable when compiling over a million pieces of data."

Said otherwise, "mistakes will happen", after all it is a central bank, and the next mistake could well be its last (see Lehman circa 2008).

And now, with all their confidence in the central bank's ability to spin errors restored, unemployed, albeit living in a socialist paradise, Europeans can go back to not asking for loans from a banking industry which, as the ECB quietly reported without errors this time, has now over $1.1 trillion in bad loans. Which, remember, is bullish: the greater the risk of catastrophic, systemic failure, the greater the probability the ECB will have no choice but to make Eurorain.



Finally, for those who actually care, below is a visualization of the ECB's GIGO results, which judging by today's European action, nobody believes in any more.