23 July 2010

Good News - Banks Fail Stress Tests!

Stress Testing the Banks
Seven out of the 91 European banks which were stress-tested failed those tests. So what are the stress tests and why is that good news?

The tests pose several scenarios, like "What if a country like Greece fails to repay its debt? Where does that leave the banks? Which of them are exposed to that debt and have to call on their own capital?"

The big problem we are all suffering from in the financial world is ongoing uncertainty. If the European regulators had said "everything is fine - no need to worry", no-one would have been sure whether to believe them - so more uncertainty. But at least now we have some hope that we know where the problems are.

Five of those banks are in Spain, one in Germany, and one in Greece.

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