So it looks to be semi-official. The “stress test” label, in Europe as in the US, signifies an exercise that is designed to produce attractive report cards, as opposed to provide a valid measure of the sturdiness of a bank’s balance sheet in difficult conditions.
So what is the biggest concern investors and counterparties have about European banks? Sovereign risk exposure. So what do the ECB stress tests apparently exclude? Sovereign risk exposure.
From Bloomberg:
Deutsche Bank AG, Commerzbank AG and Bayerische Landesbank passed a stress test that evaluated how about 25 European lenders would weather an economic downturn, said three people familiar with the results.
The three German lenders’ tier 1 capital ratio, a key measure of financial strength, exceeded a threshold of 6 percent under the economic scenario, said the people, who declined to discuss the performance of banks outside Germany. The tests didn’t include sovereign debt, two people said.
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Are those cold drugs making you more cynical? (j/k)
The stress tests methods were already described for all to see :-D
http://www.ritholtz.com/blog/2009/05/geithner-stress-test-results/
So, these results are kind of predictable
” . . The tests didn’t include sovereign debt, two people said.”
This is the equivalent of a patient who is feared to have cancer seeing a doctor and, following the rigorous standards of these bank tests, the doctor would quite consciously not run any tests that would determine if cancer was present or not.
It’s hard to put much trust in tests that are created by the same minds who create the rules that have failed so often!
The Deutschlanders finally finished the translation!
You seem to have adopted my screen name. It’s ok, you can have it, I will find another.
Off topic, but is there a reason why http://www.nakedcapitalism.com works fine for me, but nakedcapitalism.com returns a “Could not locate remote server” error? It seems like something is wrong with the setup of the nakedcapitalism server, which requires the prefix. Not really a big deal, just vaguely annoying.. unless it’s a stylistic choice?
“Running an economy for the short run winnings of financiers has not worked very well for anyone but the shrewdest, most sociopathic financiers, has it?” – Parenteau
I think this says it all…
Who is Parenteau? Interested in the source document this came from. Thanks.
nevermind. I found him in the Richebacher letter. Just need ed to jog my memory… Thanks for the reminder. Cheers.
How is it with so many great minds untying this knot and providing solutions that the policy makers insist on on going deeper into the quicksand? Oh yeah, we’re humans…
False Negatives allow Deutsche Bank AG to go about smoking dope and shooting up methamphetamine-derivatives…
See: Unfortunately, cardiac stress tests are only capable of detecting medium to high-grade limitations of blood flow to the left ventricular heart muscle, which may produce recurring angina, not the atheroma that produce heart attacks. Stress test methods do not evaluate blood flow to non-left-ventricle heart muscle. Thus stress test results are often falsely negative for many people, in terms of predicting who is at high risk for myocardial infarction due to atheroma or ruptured “vulnerable plaques”.
It has become clear that stress testing recognizes most people at risk for heart attacks too late, unfortunately only after the disease and symptoms of the disease have developed. By the time, a majority of people would already have at least medium stenosis of coronary vessels with development of atheroma or have already had heart attacks or died. It is hoped that research in higher resolution imaging techniques will allow for earlier detection and characterization of subtle atheroma and to initiate lifestyle changes and optimal medical therapy in “vulnerable patients” before they develop symptoms.
Fortunetly for all concerned, the financial world is operated with the common economic disclaimer of ‘ceteris paribus’. Therefore, when artificial tests are made on artificial subjects (banks), with artificial blood in their veins (money); the only important thing is the verification of the model, not the validity or relevance of the test..:)
You need not like it or believe. At the moment, this is what we have and most people will accept it rather than rock the boat. We are far from Happy Days and the Goldilocs economy. Things could be much better, they could also be infinitly worse.
The EU stress tests are PR fabrications in order to manufacture the appearance of a necesity to expand EU central powers over EU nations. Some of these proposals will include a euro wide bank tax coupled with a resolution fund, eu commission budget monitoring and punishment powers over non compliant nations, etc…
All is well. Global deleveraging has been cancelled as consequence.
Everybody knows that nrothern european and anglosaxon banks are full of worthless derivates; Germans too. None would pass a stress tests, where the are obliged to put derivates at the real level; Bank of Australia, in Melbourne, as early as summer 2008 wrote off 92% of its vale in derivates
lets stop lying to ourselves
Why..”stop lying to ourselves”, at this late date..:)
It is a magnificent delusion!
I don’t want to go live in a cave under a rock!
We’ve been stoned on this ‘juice’ for so long the withdrawl would be rude.
We need the time to find a different perspective.
I just wish we didn’t have to pay the authors so much for a book with a crappy ending…:(
either the crooks go to jail, or your suggestion is just what preciselly is going to happen, a crappy end
lets stop the banksters