Tuesday, August 16, 2011

European stress tests: Good or bad news?

by Marco Onado


August 16, 2011

The July stress-test results for European banks have prompted a downward spiral of bank stock prices. This column argues that it is time we called the situation a solvency problem and policymakers started getting serious.

The test results are in and markets aren’t happy. Far from assuring investors, the July stress test results for European banks prompted a downward spiral of bank stock prices (Figure 1). All the indicators are down for the year; for most nations, last month’s route accounts for the bulk of the annual drop. We’ve not seen anything like this since the Lehman collapse.

Figure 1. Bank stock performance as of 11 August 2011

Source: UBS Global Bank Valuation. The graph compares the performance of banks stocks grouped by country, on the last year and on the last month, i.e. since the publishing of the stress-test results.


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