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Thread: Bank Stress Tests; results @ 5pm today

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    Default Bank Stress Tests; results @ 5pm today

    Deserves its own thread I feel.

    In case you are an ostrich and haven't been following the financial news recently, there's a reasonable guide to the stress tests here.

    AIB and Bank of Ireland are the two banks being stress-tested here. It will be fascinating to see the test results released later. I have a problem with the relative opacity of the stress criteria and also with the fact that the tests are being carried out by the national regulator. That aside, the tests promise to be quite informative and may (if market participants are happy with the test criteria) serve to increase confidence in the European banking sector.

    Keep an eye on the CEBS website for the test results. Can I suggest that we discuss the results here?

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    RTE reporting that the regulator hinted that both banks are likely to pass:

    RTÉ News: AIB & BoI expected to pass stress tests
    Wouldn't it be fun
    If they gave the ref a gun?

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    I'm sure the banks' PR people are prepping the CEO's for the public spin. AIB in particular must be worried. If the Regulator doesn't make adequate or sufficiently clear disclosure, the market will lose confidence in these banks. If one bank emerges better than the other, depositors will vote with their feet.

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    things to watch out for (in my humble opinion):

    • Bank of Ireland; expect a pass, they have completed their capital raising program as decreed by Mr Elderfield and should have little exposure to a further sovereign debt shock (small prop trading book)
    • AIB; much more interesting. Will the regulator give them a pass based on their projected capital raising?
    • Spanish cajas; could be nasty!
    • Depfa\HRE: definite fail (duh). Will any other German banks be marked down?
    • Detailed criteria for the tests. Watch for any hint of a fudge.

    Other musings; Irish banks get away relatively lightly under the terms of the stress test. Neither of them are serious market players in terms of sovereign debt. What would be fascinating (in the bad way) would be a stress test at least partially based on a further deterioration in the quality of their mortgage loan books.

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    Quote Originally Posted by Holy Hand Grenade View Post
    RTE reporting that the regulator hinted that both banks are likely to pass:

    RTÉ News: AIB & BoI expected to pass stress tests
    THe only outcome to offer stability.

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    Macro test criteria:


    The resilience of banks will be tested under two macroeconomic scenarios –baseline and adverse – each of which assumes a predetermined path for key economic and financial variables. The CEBS has not revealed the full range of variables, but GDP, unemployment, inflation, and interest rates are the ones explicitly mentioned (presumably house prices will also play an integral role). Details about the magnitudes of the various parameters and their differences between the two scenarios are also sparse, but we do know two tidbits:
    • * The baseline GDP path for each country will be the European Commission’s latest economic forecast for 2010 and 2011 (Table 1). The adverse scenario will then assume a -3% growth deviation from this baseline for the EU as a whole, but we don’t know how this 3% shock will be distributed among the member states.
    Watch very, very carefully to see how this is applied in an Irish context. Personally I'd be stress testing against a further 30/40% fall in house prices.

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    Quote Originally Posted by cjudge View Post
    THe only outcome to offer stability.
    Fail.

    Actually the only outcome to offer real stability in the long term would be to have these turkeys declared insolvent and wound up.

    Spoofing and fudging the numbers and cooking the books to pretend that all is wonderful in the garden of St Lendahand only drags out this zombie apocalypse, potentially for decades to come.

    People in Ireland really need to learn to deal with the facts as they really are, get over things, and move on. Infantile childish race grimly clinging to an endless series of comfort blankies.

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    As long as the fundementals are sound, that's the main thing. Apparently.
    “A healthy social life is found only, when in the mirror of each soul the whole community finds its reflection, and when in the whole community the virtue of each one is living” R. Steiner

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    Thanks SG. I meant stability for those banks, but I agree it wouldn't last long. The inevitable just terrifies the government. Anglo should have been let go to the wall. Apart from helping out FF's builder/developer friends, anyone know how significant the involvement of NTMA with that bank has been in terms of the decision to prop up Anglo, and how much of our pensions are in there?

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    Quote Originally Posted by cjudge View Post
    Thanks SG. I meant stability for those banks, but I agree it wouldn't last long. The inevitable just terrifies the government. Anglo should have been let go to the wall. Apart from helping out FF's builder/developer friends, anyone know how significant the involvement of NTMA with that bank has been in terms of the decision to prop up Anglo, and how much of our pensions are in there?
    Aye all the banks, stockbrokers, pension funds and investment houses were all up to their necks in one anothers shares. Anyone with a private pension should check their annual statements for the last 3 years very carefully - you'll probably find that huge wodges of your cash have vanished. Ask the real questions - why was a small bank that almost exclusively catered to one small market segment (builders) "systemic"?

    Because every other overpaid drooling idiot in every other Irish bank and pension fund believed that "property only ever goes up" and Anglo were therefore a sure-fire one-way bet to untold riches, and they all piled in and filled their boots.

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