News - 23 July 2010
Story by: Donia O'Loughlin
Stress tests are unlikely to solve confidence problems plaguing the European banking sector, according to Mark O’Sullivan, director of dealing at Currencies Direct.
The results of the Committee of European Banking Supervisors' (Cebs) stress-test of the European Union's largest banking organisations are due any day now.
Mr O’Sullivan said that if the stress tests were seen as weakn they would lose their credibility and if they were too harsh then currency markets could be spooked, making a fragile situation even worse.
He said: "If the tests are seen as transparent, then the credit markets that have remained locked down for many European banks could start to reopen.
"But if the market views the stress tests as simply a ‘smoke and mirrors’ exercise, things could get a lot worse for many European financial institutions."
Justin Bisseker, European banks analyst at Schroders, added: ""ith the notable exception of Spain, where I believe the Central Bank is running the numbers – the European stress-test is more of a self-marked exam.
"In addition, 10 of the 19 banks stress-tested in the US failed and had to recapitalise. If recent leaks are to be believed the European ‘tickle stick’ will prompt capital raisings by fewer banks than you can count on the fingers of one hand."