The over-under for the European bank stress testsare 12 out of 91 fail the tests and need capital injections. Unlike the US stress tests, the European tests didn’t tell us the metrics or guidelines before the tests were run.This has generated uncertainty over exactly how these banks are going to perform.
Today, most of this should be resolved.
Key metrics not used: a default by Greece and not stressing the hold-to-maturity bond portfolios of sovereign debt.
My take is this: how many Greek banks fail?
If there is no Greek bank failing the test, then how good can the tests be? If they didn’t test for a Greek default, what value will the result be? Also, the outcome has a pre-determined feeling to them that means they will show better than expected results. This is an exercise of kicking the can down the road and hoping tax receipts will rise when the economies of Europe rebound.