Stressful Tests

Summer is here. Schools and Universities are working towards the end of their academic year. Many pupils and students will have had to sit examinations over the last few weeks. My daughters both sat exams. May and June are usually fairly stressful for students. So imagine the news from Friday evening that now nearly 3 years after the credit crunch really took hold the European Banking Authority published its 2011 results.

Ninety banks have been "stress tested" from 21 countries. Sadly eight banks failed the stress tests and a further 16 are frankly "borderline". That's roughly a quarter - not terribly impressive. The stress test essentially looks at capital available to the bank in the event of disaster. Levels of capital adequacy have been previously agreed. As a result many banks have been "repairing their balance sheets" the problem with them doing this is that they are building up their own reserves rather than lending money to stimulate economic growth. So all of these 24 banks will have to do further reparation to their balance sheets, which means further sluggish lending.