stress tests

Ralph Atkins

There is a lot going on behind the scenes in German banking circles to prepare for the publication of Europe-wide “stress test” results later this month. German banks were always the most opposed, for a mixture of principled reasons (they are a bit of a PR gimmick) and fears about what they would reveal.

But the exercise is not only a test for the banks themselves. It is also a challenge for Axel Weber, the Bundesbank president who is tipped as a possible successor to Jean-Claude Trichet, when the European Central Bank president’s non-renewable eight year term expires in November next year. Read more

Several banks are likely to need to raise fresh capital, if European stress tests are anything like their American predecessors a year ago (see chart, right). The key question for the resulting stability of the banking sector is what the market has already priced in.

This time last year, US stress tests were published. Bank of America came off worst, needing $33.9bn more equity (though in the days following, its share price rose).

After the tests, US regulators ordered 10 of the largest banks to add a total of $75bn in equity, resulting in share sales, conversion of preferred stock and the occasional debt sale too.

Below is a list of the top 25 European banks by assets under management, as food for thought over the weekend: Read more

Name a small country exposed to a large banking sector. No, not Iceland. Belgium, courtesy of Fortis and Dexia.

So is Belgium most at risk from the EU’s new commitment to stress test transparency? Possibly, says Jacob Funk Kirkegaard in an article for the Peterson Institute. But that would be a small price to pay: Read more

** corrected at 16.40 to read “in the near future” instead of “next few days”

Spain’s central bank has thrown down the gauntlet to bank regulators elsewhere in Europe, saying it plans to publish the results of “stress tests” on the country’s financial institutions in the near future to clear up doubts about Spain’s banking system. (Berlin has also dropped resistance to the plan.) Read more

Austrian stress tests have shown that the country’s top banks would lack capital if the global economy were to double dip. Central bank supervisor Andreas Ittner said the Tier one ratio of the six biggest banks would drop to 5.8 per cent by the middle of 2011 under the scenario. “Our stress tests show that capital adequacy levels must be raised further in the medium term.  This applies to both the quality and the amount of banks’ own funds,” he said. The tests show Austrian banks being particularly hard hit in Eastern Europe.

Separately, the Austrian government took full control of Hypo Group today. A $2.2bn bail-out is expected, from both government and shareholder capital.

Yes, rising. The composition of lending in China is changing significantly (see chart). Although net lending fell in Q3 and in October, that was driven by a sharp reduction in short-term loans. Medium- and long-term loans, which arguably provide greater support for investment and for the real economy, continued to grow at a brisk pace during Q3:

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