The European Central Bank (ECB) is undertaking another Asset Quality Review for the Eurozone banking sector imminently. Regardless of what numbers are actually published, it will almost certainly be an order of magnitude smaller than the actual hidden losses. Euro area bank balance sheet repair will remain a drag on growth for several years to come as a result.
Why do we say this with such a high degree of certainty? Well consider the case of the US. Since Geitner published the US stress tests in 2009 saying the banks needed to raise USD100bn of capital, the subsequent loan losses cumulated to USD800bn as well as USD300bn of securities losses and fines and a USD217bn of remediation, equating to 16% of all risk assets. And its worth recalling that nobody believed the Geithner numbers when they came out either.
But the US is a model of transparency compared to the Eurozone.…Macrobits by Marshall Auerback
ECB Stress Tests Represent Another Case Of Extend And Pretend In Europe
Marshall Auerback
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