The European Union (EU) bank stress tests failed to account for a sovereign default, meaning results show a healthier banking sector than actually exists.
The tests results were released Friday with seven banks failing, but analysts say many more institutions could have failed if the tests simulated a sovereign default. Testing regulators from the Committee of European Banking Supervisors (CEBS) decided against testing securities held in lenders' banking books, where sovereign debt is held and only written down in the case of default.
"The long awaited stress tests do not seem to have been that stressful after all," said Gary Jenkins, an analyst at Evolution Securities Ltd. "The most controversial area surrounds the treatment of the banks' sovereign debt holdings."
loan default
Article Index
Ignoring Sovereign Default Damages Credibility of EU's Bank Stress Tests
Surge in Strategic Defaults Threatens Housing Market Recovery
A growing number of homeowners who owe more on their mortgages than their property is worth are opting for "strategic default," which means walking away from their homes, even though they can afford to make their monthly payment.
If the trend accelerates, it could put more empty houses on a market that's already overburdened with vacancies and snuff out any recovery in the moribund housing market.
Right now, more than 10% of borrowers are 25% or more underwater on 4.9 million mortgages. The total valuation could saddle banks with as much as $656 billion of bad loans, according to the latest report from Corelogic.
If the trend accelerates, it could put more empty houses on a market that's already overburdened with vacancies and snuff out any recovery in the moribund housing market.
Right now, more than 10% of borrowers are 25% or more underwater on 4.9 million mortgages. The total valuation could saddle banks with as much as $656 billion of bad loans, according to the latest report from Corelogic.
Is There an Ulterior Motive for Bailing Out Greece?
Since back in December, when Fitch Ratings Inc. slashed its credit rating on Greece's debt to below investment grade for the first time in 10 years, there's been a mind-numbing flood of media coverage of that European country's debt crisis.
And yet, despite high-volume of high-level media coverage, none of the stories have picked up on a very basic - yet very key - fact...
The bailout being developed is as much for Germany as it is for Greece.
Let me explain ...
And yet, despite high-volume of high-level media coverage, none of the stories have picked up on a very basic - yet very key - fact...
The bailout being developed is as much for Germany as it is for Greece.
Let me explain ...