European financial markets began to fail with the Greek debt crisis causing stress tests to be developed to see how European banks could manage more shock. After the tests were administered, it was determined that seven major European banks could not manage further strains as they did not have sufficient reserves to handle one more crisis. Some nations in the European Union bloc that pledged aid within the Greek debt crisis fared better than others. 91 banks were tested with only 7 failing.
The seven failed
The Wall Street Journal reports that these banks were Hypo Real Estate Holding from Germany, ATEBank in Greece, and Unnim, Espiga, Diada, CajaSur, and Banka Civica. These seven banks were unable to keep enough of Tier 1 capital, or cash reserves equal to 6 percent of the worth of their total assets. The onus behind the tests was to make sure the banking sector could withstand any more shocks to the European financial system, in case one or more governments defaulted on any debt that they held.
Thin line to walk
Stress tests like this have to be exactly correct. This was made so lending can begin again since investors and lending institutions could have confidence. The European Central Bank, as outlined by the New York Times, is trying to keep from having to make any more bailout loans to banking institutions and get them to start lending to each other again. If the test were too easy, it would be hard to discover someone to believe it. Things might appear worse than they are with a test that is too strict.
Euro lending inside the Euro Zone
European lending is constrained, and until the Greek crisis is resolved, the European Union is going to be somewhat credit constrained. The Euro was becoming less valuable than the U.S. dollar although now with the U.S. economy staying low, the dollar is slipping too.
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Wall Street Journal
online.wsj.com/article/SB10001424052748703294904575384940544522582.html?mod=WSJ_business_LeadStoryRotator
New York Times
nytimes.com/2010/07/24/business/global/24stress.html?pagewanted=1 and amp;ref=business
