Stress tests were developed to test European banks after the Greek debt crisis made for a lot of issues in European financial markets. Seven major European banks were tested and failed showing they wouldn’t be able to deal with any more issues with the economy. The European Union bloc said it would give aid to the Greek debt crisis although numerous did better on the test than others. 91 banks were tested with only 7 failing.
The seven banks
The banks which were unable to meet requirements were, the Wall Street Journal reports, Hypo Real Estate Holding AG in Germany, ATEBank in Greece, and Unnim, Espiga, Diada, CajaSur and Banka Civica. None of the seven banks could keep enough cash around to represent 6 percent of the worth of their total assets. In case of one more government defaulting, all banks needed to be able to withstand troubles with the European financial system.
Taking precautions
Stress tests like this have to be exactly correct. The idea is to restore confidence among investors and lending institutions so that normal lending and lending between banks will resume. The European Central Bank hopes to be able to begin normal lending again and to stay away from bailout lending, reports the New York Times. If the test were too easy, it would be hard to find somebody to believe it. If the test is too hard, it could make things look much than they’re.
Lending within the Euro Zone
Until the Greek crisis is fixed, European Union could be credit restrained and keep away from all lending. The Euro had been valued lower against the dollar as a result of the ongoing turmoil, but recent uncertainty of U.S. recovery is leading to the dollar beginning to slip slightly.
More details on this topic
Wall Street Journal
online.wsj.com/article/SB10001424052748703294904575384940544522582.html?mod=WSJ_business_LeadStoryRotator
New York Times
nytimes.com/2010/07/24/business/global/24stress.html?pagewanted=1 and amp;ref=business
