FRIDAY JULY 23, 2010

Everyone passes...I'm shocked!

The European Union has completed its stress test of the union's banking system.  And lo and behold, just about every bank passed.  What is this, Harvard?!    Only 7 of 91 banks tested failed the test.  One has to question the veracity of these tests when the banks that we know were in dire straights pass.  But let's be clear, this does not mean the 7 banks are failing today.  It means they would fail under certain stress scenarios.  And, interestingly, the scenario in which the bank's fail is related to a sovereign debt default.  So, the country that is giving the test fails a bank because the country's debt has failed!


The results of the test show the failing banks with an aggregate capital shortfall of 3.5 billion Euros.  While any number measured in billions is large, in the total scheme of global finance, 3.5 billion Euros is a pittance.  It should be easy for the private markets to raise this capital.  In the unlikely event that the private market can't, then the governments surely can (think $787 billion stimulus or $400 billion TARP in the states).


Seriously, while the veracity of the test will be questioned, this will mark the end of another uncertainty for the markets.  The European economy is still likely to slog along for some time, but the notion of a European economic collapse is folly.

POSTED AT 1899-12-30 12:06:00.0

KEN ENTENMANN, CFA
SENIOR VICE PRESIDENT AND
THE DIRECTOR OF INVESTMENT MANAGEMENT SERVICES

Ken is a Senior Vice President and the Director of the Trust and Investment Services at Alliance Bank, N.A. He has 23 years of investment experience and oversees the management of assets totaling $1 billion. He holds a B.S. in Applied Economics and Business Management from Cornell University and an M.B.A. from the William E. Simon Graduate School of Business Administration at the University of Rochester. He has also earned his Chartered Financial Analyst designation. He is a member of the Executive Committee of the Trust Division of the New York Banker's Association. He is also a director of the Central New York Community Foundation.

RECENT POSTS

Better Unemployment Number


The "Safety of Bonds" Myth


Just like that!


Ugly August


Bright Side of Double Dip Fears


All eyes on Wyoming


Lack of Business Confidence


Are bonds forecasting a double dip?


Are rates too high?


Slowdown?

The opinions expressed here do not represent the views of Alliance Financial Corporation and Alliance Bank, N.A. This communication is not an offer or solicitation for the purchase or sale of any security, is for general informational purposes only and does not provide personalized investment advice. When making personal investment decisions you should consult your investment adviser or rely on your own research. Copyright 2008.