The devil is in the detail, or lack thereof, for the European bank stress tests.
The results of the tests will be released Friday, which could affect both the European and US markets.
But there are major differences between the tests used in the US in 2009 and those being employed in Europe now. Analysts say the comparisons aren't looking favorable for Europe largely because of what we don't know about the tests on the continent.
What we know is that the US stress tested its 19 biggest banks, while Europeans will test 91 banks, a much larger and unwieldy group that involves the work of around 20 separate national bank regulators. In the US, four regulatory bodies were involved in designing and testing the banks, largely led by the New York Federal Reserve bank.
The European banks' portfolios will be tested under an assumed decline in GDP (gross domestic product) of 2 percent this year and 1.5 percent next year. Those numbers are on par with US assumptions, which looked for a 3.3 percent decline in GDP the first year, 2009, and a rise of 0.5 percent this year.
Whereas critics of the US bank stress tests complained that there were too many details, the concern about European tests is that there are too few.
For example, US regulators told the public what assumptions it was making for unemployment and housing price declines—a key component since so many of the perceived problems on the banks' books were real estate-related.
US regulators also laid out a program for how banks could fill whatever shortfalls in capital the stress tests revealed. Critics of the European tests see a lack of transparency and little clarity about funding should banks fail.
Some countries have made public a funding mechanisms if banks can't raise private capital, others haven't. Apparently, nations that have trouble funding their own bailouts can access a program from the International Monetary Fund (IMF), but the route to getting that money is unclear.
The fear is that capital holes are revealed to markets, but no fix is apparent.
Another issue: A big part of what ails European banks is the sovereign debt held on their books. But no one knows what discounts will be applied to those debts, which markets have already deeply discounted.