Saturday, July 31, 2010

Seven banks may be closed after failing to meet capital needs in Euro stress tests

European financial markets began to fail with the Greek debt crisis causing stress tests to be developed to see how European banks could deal with more shock. Seven major European banks were tested and failed showing they wouldn’t be able to manage any more problems 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. The purpose of this was to make certain banks were secure in case the European Financial System had another problem, including a government defaulting.

Being very careful about this

The test that is administered has to be perfect. The idea is to restore confidence among investors and lending institutions so that normal lending and lending between banks will resume. The New York Times reports the European Central Bank wants to stay away from bailout loans so it can start lending again. If the test were too easy, it would be hard to discover someone to believe it. If the tests are thought to be too strict, then the entire European banking system will appear to be on the verge of collapse.

Euro Zone loans

Until the Greek crisis is fixed, European Union can be credit restrained and stay 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.

Additional information at these websites

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



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