WHY IS EUROPE DOING IT RIGHT AND WE’RE NOT?

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EDITORIAL COMMENT: Apparently the Europeans have no difficulty in seeing the weakness of large banks and the imminent systemic threat of the megabanks to the financial system. They are ready to raise capital requirements to make the banks put up or shut up to show that they are viable. They have no difficulty in understanding that the assets shown on the balance sheet are at best dubious and quite possibly fictitious. So when you look at what the banks are doing here and what they are reporting, and you hear our regulators putting us to sleep with their assurances, you may wonder why our government and regulators are so willing to let us move closer and closer to the final financial Armageddon.

European Bank Stress Tests to Hit German Banks Hard

By JACK EWING

FRANKFURT — Banks that fail a planned health checkup by European regulators in June will be required to present a recovery plan that could force some weaker institutions, particularly in Germany, to raise more capital or even wind down their operations, according to documents released Friday.

The European Banking Authority released more details of how it will conduct the so-called stress tests of 90 of Europe’s largest banks. The rules appear to create a problem for some German landesbanks by disqualifying a portion of the funds they now use to meet regulations on capital reserves.

The authority said in a statement Friday that it expected any bank “showing specific weaknesses in the stress test, to agree with the relevant supervisory authority the appropriate remedial measures and execute them in due time.”

The stress tests have become a heated political issue in Germany because they threaten to impose unpleasant choices on the state governments and local savings banks that typically share ownership in the landesbanks. The economics minister of the state of Hessen, Dieter Posch, said this week that the state’s landesbank, Helaba, should boycott the stress test, which it is likely to fail.

It is not up to banks, however, whether to participate or not, officials said. While banks can opt not to disclose the results of their tests to the general public, they must give information to regulators as part of the stress tests and would be required to take action if they failed.

While political leaders and representatives of the landesbanks have complained about the stress tests, many economists have said that pressure is needed to force the banks to rebuild their capital reserves and avoid the risk of another financial crisis.

The banking authority said Friday that, to pass the stress tests, banks must have a capital cushion equal to 5 percent of assets. Banks had been waiting for the E.B.A. to disclose how it will define the cushion, known as core tier 1 equity and considered the most durable form of reserves.

The European Banking Authority, which is under pressure to make the tests more rigorous and credible than a similar exercise last year, said Friday that emergency government aid would still qualify as core capital.

Commerzbank, a commercial lender in Frankfurt, is among banks that received billions in capital from the German government. But the bank already said this week that it would issue new shares and take other measures to repay the aid and bolsters its capital reserves.

The E.B.A. definition appeared to exclude so-called silent participations by other shareholders, such as the savings banks who provide a significant amount of the funds that many landesbanks use to meet capital requirements. The definition would also exclude silent participations by state governments that were not part of an emergency bailout.

“Naturally silent participations are important to banks that do not have access to the market,” said Dominik Lamminger, a spokesman for the Association of German Public Sector Banks, which represents the landesbanks.

The association has maintained that German landesbanks would pass the stress tests, but it argued that it was unfair to hold the banks to a standard not yet required by law.

It appeared that the planned stress tests were already prompting some landesbanks to take action. The state of Lower Saxony will convert silent participations worth €1.2 billion, or $1.68 billion, in NordLB, a landesbank based in Hanover, into ordinary shares, the newspaper Handelsblatt reported. Ordinary shares would count toward core capital for purposes of the stress test.

NordLB could not immediately be reached for comment.

10 Responses

  1. THE A MAN
    “Excuse me first they will take the politicians and judges out to the main square and burn them alive”
    fiiiiiiiiiinally ,action WITH RESULTS.
    where can WE sign up for this?

  2. seriously, if europe can reign in the banks somewhat its a move in the right direction, but where to start. we have a spineless government and the courts are failing us…so far

  3. seriously, if europe can reign in the banks its a move in the right direction, but where to start. we have a spineless government and the people have forgotten

  4. Anon..i thought it was Neil

  5. Europe was the first to expose the great American Securitization Fraud. Without Europe’s exposure — well, — we may not have had TARP — and phony foreclosures due to US Government response.

  6. Europe especially the uk has enjoyed high unemployment for longer… I say enjoyed it’s a welfare haven. The more kids you have the money you get it’s a crazy system they have not got it right the tax payers are furious. the gap between the haves and the have nots was/is far greater than the us has enjoyed. We are in this together the Americans the English the Iti,s the French the Greeks the Irish ect ect remind me what deutche and credit Suisse got from the fed window

  7. Excuse me first they will take the politicians and judges out to the main square and burn them alive

  8. Because in Europe they riot and they will burn the cities down.

  9. Neil , I still have German Blood ,but I can tell you ,if the Goverment shout down ANY business ,there is no way to pay a bonus after that , otherwise you go to gail.
    How can you pay with red numbers a bonus ??
    In Germany you have 30 days to pay your car repair , after you pick up your car.YES . In the USA you take deposit , when you bring the car in.

  10. I don’t think Europe is really doing it right from what I’ve read on other blogs about troubles in Ireland, UK, Portugal, etc. Zero Hedge had an article on some of their bogus “stress tests” (just like we have here).

    I think Iceland has it right though!

    http://mandelman.ml-implode.com/2011/02/ice-ice-baby-%e2%80%93-iceland%e2%80%99s-people-give-cold-shoulder-to-paying-for-acts-of-reckless-bankers/

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