Great line from Hank Celenti of SocGen (itself a stressed-out European bank) on on the bank stress tests in Europe.News reports that the amount required to recapitalize EU banks is much lower than initial market expectations of €200bn to €300bn creates questions of exactly what is being tested. The banks or our sense of humour? It also raises questions regarding the expected outcome post- capital raising. The Financial Times reports that European Banking Authority (“EBA”) recommended to EU finance ministers over the weekend that EU banks need €108bn in additional capital. Last week, the FT reported that the main offsetting factor is the positive impact on bank capital from including the positive fair value impacts of non-peripheral sovereign debt, such as UK and German debt, as an offset to negative value effects from peripheral sovereign debt. We beg to differ; the difference is in the rate of discount applied to the peripheral sovereign exposures.