Here Come The New European Bank Stress Tests

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The European Banking Authority will hold banks to a minimum 7% core Tier 1 capital requirement in stress tests being conducted right now, according to Reuters.

These new tests will use data from the end of June to calculate banks’ exposure risks and capital standing. Banks could need as much as $137 billion to meet that level.

A source told Reuters, “A significant number of banks are expected to fail the stress tests.” Banks were asked to submit data on Friday, three sources said, and will turn in those figures by the end of the day today.

No word yet on when the results will be released.

Whispers abound that these new tests will also examine banks’ positions under a Greek default, entailing a nearly complete write-down of Greek debt.

Investors have hoped that these stress tests will hold banks to a much tougher standard than did tests undertaken in July, when only 5 banks failed to maintain the required capital ratio of 5% and no sovereign defaults were accounted for.

While hopes are high that these tests precede an imminent, coordinated bank recapitalization plan, we have seen no announcements to date indicating that policy on recapitalizing banks has changed.

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