European Economy: Europe moves away from Wall Street Pressure - ECB's bank stress test results set for 26 October

The results of Europe's most comprehensive review of banks' health will be released on October 26, the European Central Bank and the European Banking Authority said today.

The test results will give the clearest picture yet of the state of the European banking sector.

The ECB hopes the tests will banish fears about the health of European banks, which were hit hard during the financial crisis, and restore investor trust and revive lending to euro zone households and companies.

This is key to getting economic recovery back on track.

While the ECB is putting the euro zone's 130 largest banks through a backward-looking asset quality review and forward-looking stress test, the EBA will also run stress tests on banks in Britain and some other non-euro countries.

UK banks face an additional test to their resilience to withstand a sharp drop in housing prices and the Bank of England said the result of this will be published on December 16.

The ECB has said lenders will have six months to cover any capital shortfalls reported in its asset quality review or the baseline stress test scenario, and nine months to cover any capital shortfalls from the adverse stress test scenario.

"Following the publication of the results, banks will, where necessary, have two weeks to submit capital plans to the ECB, detailing how shortfalls will be covered," the ECB said today.

It has imposed the rigorous tests to wipe the slate clean before it takes over as the bloc's banking supervisor in November - part of a broader push for European integration to avert future crises.

EU-Digest

IMF worried about Europe’s banks

In its latest Global Financial Stability Report, the IMF warned Europena banks need to further build up their capital – the money they keep in reserve. The fund said lenders should do that by reducing the size of the dividends they pay out to shareholders and by retaining a greater proportion of earnings.

It highlighted British banks exposure to property loans and said there are looming funding challenge for both banks and governments struggling with sovereign debt problems, “particularly in some vulnerable euro area countries.”

Banks globally face a 2.5 trillion euro “wall of maturing debt” coming due in the next two years with the rollover requirements most acute for Irish and German banks.
 
The IMF says the European Central Bank’s upcoming stress tests provide a “golden opportunity” to improve bank balance sheet transparency and reduce market uncertainty.

For more: IMF worried about Europe’s banks | euronews, economy

Theage.com.au: Forget Wall Street, beware the crash on Main Street

For the complete report from Theage.com.au click on this link

Forget Wall Street, beware the crash on Main Street

Institutional Risk Analytics overnight released stress tests of almost all US banking institutions indicating that 1575 of about 8000 are troubled. Meanwhile, The Wall Street Journal has reported that Morgan Stanley, Wells Fargo and GMAC have joined Bank of America and Citigroup in the underfunded bank category. The analytics report is alarming as it reveals that a huge number of banks scored an F, indicating they are severely stressed and threatening Main Street, while the US Administration and the media have concentrated on the big 19 banks crucial to Wall Street.So with more than 1500 smaller and regional US banks slowly starving on dwindling lending income, the implications for Main Street are apparent. As the risk analytics group noted, banks do not or cannot lend as they are unsure of the viability of other companies and financial institutions. While it is vital to ascertain the viability of the big banks so money starts moving through the international credit markets, the same is true for smaller banks that fuel the real economy.

Note EU-Digest: The era of "Zombie Banks" has arrived bringing back a revitalized "Wall Street Casino". The result: a "Main Street" which remains in intensive care with life support systems shutting down.

Time Magazine: US Banking system - What the Stress Tests Didn't Tell Us - by Christian Menegatti

For the complete report from TIME magazine click on this link

US Banking system - What the Stress Tests Didn't Tell Us - by Christian Menegatti

U.S. authorities have just released the results of the stress tests that they ran on the top 19 U.S. banks. This group holds about two-thirds of the total assets in the U.S. banking system. The health of those balance sheets has profound implications for the severity and length of this global synchronized recession.Don't be comforted by the results. That's because two different scenarios are used to stress test the balance sheets of financial institutions: baseline and adverse scenario. The baseline was designed to represent the consensus at the time in which the plan was presented. Unfortunately, current macroeconomic conditions are already worse than the adverse scenario (which is closer to the new consensus) for all the three variables of the test —unemployment, real GDP and home prices.

USA Today: US Government nervous about Banks stress test results - by Pallavi Gogoi

For the complete report from USATODAY.com click on this link

US Government nervous about Banks stress test results - by Pallavi Gogoi

Next week's bank stress tests results are a key part of the Obama administration's economic recovery plan, but the government has big worries about how to deliver the results without hurting the banks' reputation or scaring financial markets. However, the U.S. government has never released such specific data about any bank examination for fear that there could be a run on banks with less capital, with depositors pulling their money out and businesses moving to other banks. Fed Chairman Ben Bernanke has said the banks will be given six months to raise private capital before they can tap the government bailout fund. However, Wallace says private investors will only provide capital if they know there is a government backstop such as a guarantee it will cover any future losses above a certain level.

Note EU-Digest:Given the above uncertainties it can only be hoped that the figures of the stress test won't be "tweaked" to reflect only the positive?