Germany’s bonds in EU stress tests
THE most dramatic stress scenario for tests being applied to European banks envisages write-downs of 2.3 per cent on German government bonds, 20 per cent on Greek sovereign debt and between five and 11 per cent apiece in the case of other periphery Eurozone countries such as Portugal and Italy, reports suggested yesterday.
The “shock” scenario, the severest of three being modelled, would only take into account sovereign turbulence as it applied to banks’ short-term trading books, not longer-term holdings, it is understood.
Last week, analysts from Commerzbank wrote: “Should it be confirmed that only moderate haircut scenarios are being examined, the whole thing could easily backfire. In that case, prophets of doom would consider the choice of scenarios a deliberate attempt to make the results look better than they are.”
European finance ministers will meet today as question marks gather over the rigour of the stress-testing being applied to 91 of the region’s most important banks.
Representatives of the European Union’s 27 member countries will have the chance to rebut criticism from analysts, who have accused regulators of using unrealistically mild assumptions of the worst-case scenarios.
EU finance chiefs are also likely to discuss the capital-holding ramifications of the tests at their monthly gathering in Brussels. European banks, including the weaker Spanish cajas and German landesbanken, could be forced to add €90bn (£76bn) to their capital buffers, according to Credit Suisse research. Germany’s Deutsche Postbank, Italy’s Banca Monte dei Paschi di Siena and many of Greece’s large banks could be asked to hold significantly more capital. In comments suggesting lenders may be offered further state aid to cope, European Central Bank president Jean-Claude Trichet on Friday said the crisis was not over and banks should remain open to accepting help.The results of the stress-tests are due on 23 July, and will include UK giants such as Lloyds and Barclays.