Impending ECB stress tests affecting bank shares

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On the 26th of October the results of stress tests will be announced which of Europe’s biggest banks have valued their assets properly and whether more capital will be required in order to withstand an economic crash.
Early last year when Europe announced it was going to conduct health checks of banks, a ‘comprehensive assessment’ was promised of how well prepared they had been to withstand another financial crisis. In practice, an attitude of comprehensive compromise has also been important. Interviews with officials, bankers and others involved in the European Central Bank’s financial inspection of the Eurozone’s main banks show that since it began, the ECB has had to deny many requests from banks for special treatment.

‘Supervisors have revised the way they value capital and banks have failed to provide all the data demanded multiple compromises which can threaten the tests’ reputation as tough and consistent.’

On the 26th of October the results will be announced which of Europe’s biggest banks have valued their assets properly and whether more capital will be required in order to withstand an economic crash. Anticipation of the results is already affecting bank shares negatively, such as Monte Dei Paschi in Italy is falling to record lows as investors fear it may have to raise more money.

‘This health check provides in-depth unprecedented information on the condition of the largest banks in 19 countries and aims to strengthen banks’ balance sheets by identifying issues which in turn will build confidence and trust in investors’, a spokeswoman for the ECB stated.

The banks could calculate the maximum adjustment to provisions they were likely to face, the source said; an indicator to the ECB’s final assessment of whether they would have to raise more capital or restrict shares.