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Questions Over Stress Tests Until Transparency: Rodgin Cohen

The Committee of European Bank Supervisors (CEBS) announced today that 7 out of 91 bankshave failed the European stress tests.

Map of Europe
CNBC.com
Map of Europe

The absolute number of failed banks is going to be "far less important than if and when we see what the actual metrics were," Rodgin Cohen, Senior Chairman of Sullivan & Cromwell told CNBC today.

Most of the largest European banks, according to Cohen, are well capitalized but these results "can't begin to tell the full story."

Until we get the "transparency and can access the credibility," Cohen said, there will be big questions hanging over the stress tests.

Everyone has been looking at sovereign debt default, but the question he wants to know is: what assumptions were being used for the loan book? "If your talking about stress, banks have more loans than they have sovereign debt—that would be a critical element," he said.

The European stress tests, unlike the United States, have focused exclusively on tier one capital.

"It would be interesting," Cohen said, "to see where they come out on tier one common— which is what the U.S. used as a second test—as we come to a purer form of capital as the most important," Cohen concluded..

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