You Can't Trust the EU's Bank Stress Tests: Strategist
Investors shouldn't take the European Union's bank stress test results at face value as the figures may not be telling the whole truth, Ralph Silva, director of Silva Research Network, told CNBC ahead of the test results Friday.
"We absolutely cannot trust the banks to be absolutely clear and the reason for that is we're not running one stress test; we're running multiple stress tests," Silva said.
When a regulator asks a bank how it will deal with house prices going down 50 percent, the bank will say it will simply bring the money in from another country, Silva said. Banks in other countries are going to give the same answer because they are all global banks that are being tested, he said.
- Watch the video above to see the full interview with Ralph Silva
"It's impossible to guarantee that they are going to be telling you the truth," Silva added.
Not only are the stress tests unlikely to yield accurate results, but they could endanger the recovery in the sector, according to Silva.
"You don't ask someone to run a marathon a week after they broke their leg. We are stress testing the banks in a position where they are recovering," he said.
"By doing these stress tests what we are in fact doing is highlighting the problems that are going to stop them from lending instead of encouraging them to lend," he added.