The “Stress Test” that was designed to build confidence in the banking system has just destroyed confidence in it.
by Bix Weir, SGTreport.com:
“Monte Paschi’s fully loaded common equity tier 1 capital ratio, a measure of its resilience, dropped to a negative 2.4 percent in the adverse economic scenario, according to the test results released Friday, which put lenders through a simulation of a severe recession over three years. UniCredit SpA’s ratio fell to 7.1 percent, as measured under fully-loaded capital rules, the second-worst result of the five Italian lenders being examined.”
As the ECB tries to spin the results of the EU Stress Test into something positive it’s a very difficult trick to pull off for these reasons…
– The overall ratios are higher only because they took out the worst banks in Europe from Portugal, Greece or Cyprus by testing 51 bank instead of 123 banks like the last time they did a stress test.
– They did NOT factor in the BREXIT scenario which will cut the GDP of European economies significantly.
– They did not factor in the new Negative Interest Rates that are destroying the European banks
Even leaving out all this there were ten banks that either failed or are close to failing including some of the largest derivative holders in the world: Deutsche Bank, RBS, SocGen, Commerzbank and Barclays.
With a little drama of an announced “bailout deal” for Monte Paschi moments before the release of the results, the terms of the bailout deal are sketchy and not likely to support the failing bank for very long. Come Monday – when the BIG money try to get everything they can out of Monte Paschi – their doors will likely shut for any major withdrawals.
What does it all mean?
It means the “Stress Test” that was designed to build confidence in the banking system has just destroyed confidence in it.
It means there are no more “green shoots” in Europe and the last people to withdraw their money from the bank will lose it all. Then again, there is so little Tier 1 capital in those banks it will likely be the FIRST person to withdraw their money will be the only one to save their wealth!!
I’ll race ya to the ATM!
May the Road you choose be the Right Road.
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