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On Friday, Europe will release its second round of bank stress tests.You’ll recall that they did that last year, but the stress tests were widely criticised for being too weak, and not taking into account sovereign debt, which basically allowed everyone to pass.
So, what should you expect?
Goldman’s Jernej Omahen has a good one-page overview of the results, which will be released at 12:00 PM ET.
So here’s what you need to know:
- 91 banks were stress tested.
- The methodology will be harsher. Goldman: “As laid out in our earlier research from May 19, key changes from 2010 are: (1) core – not headline – Tier 1 (CT1) capital forms the base; (2) the hurdle rate is tougher, at 5% CT1; (3) disclosure of capital composition will allow effective comparisons; (4) B2.5 RWA will be used; and (5) key B3 adjustments will be disclosed, allowing for fully phased B3 CET1 comparison across EU banks.”
- Investors expect a 90% pass rate.
- Banks in Spain, Germany, and Greece are expected to need the most fresh capital.
Today: The Italian bank regulator came out and said that no Italian banks will fail. For days, various finance ministers have been coming out predicting high pass rates.