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EU banks are about to face a new stress test which will force them to evaluate their financial position if they have to write down their Greek sovereign debt, according to the FT.The European Banking Authority has been asked to compile a new set of stress tests that will examine how much capital banks will need in the event of a Greek default.
That’s according to senior officials involved in the process. They added that this was not a sign EU leaders thought banks were on the verge of default. Instead, they said, it’s the first step towards bank recapitalizations.
Markets are rallying, hitting highs of the day.
This development implies that European officials have admitted the weakness of bank stress tests conducted in July. Only 5 banks failed those tests, which did not assume that any sovereigns would default.
EU finance minister Olli Rehn made promising positive remarks, talking about a “coordinated, concerted approach” to bank recapitalization yesterday. That drove the Dow on a 300-point rally in the last hour of trading yesterday.