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Will European governments have to inject capital?

Robert Peston | 13:15 UK time, Friday, 18 June 2010

In the context of the eurozone's financial crisis, it is gripping that European Union leaders yesterday agreed to carry out stress tests on the region's 25 biggest banks (including the UK's big five).

Jose Luis Rodriguez Zapatero and David CameronHowever, this decision - made under pressure from the American government in particular - to assess whether those banks can withstand whatever economic storms lie ahead raises rather more questions than it answers.

Here are just a few of the relevant issues:

1) Will Greek sovereign debt on the balance sheets of European banks be valued on the basis of Greece's realistic prospects of repaying 100 cents for every borrowed euro - which most analysts would say are close to zero - or on the basis that for a period at least the rest of the eurozone is underwriting Greece's refinancing requirements? The first approach would crystallise perhaps €150bn of losses and the second zero losses.

2) In a more general sense, will the stress tests attach any probability to the possibility of default by other eurozone sovereign borrowers, or will it simply assume the success - which is by no means guaranteed - of the eurozone's and IMF's €750bn bailout package?

3) With the results of the stress tests due in just a month or so, can European financial regulators really assess with any degree of confidence the vulnerability of banks to Spain's frail property market?

4) What weight will be attached to the excessive dependence of European banks on unreliable finance from wholesale markets? Or will the stress tests assume, in what investors will see as a naive way, that the European Central Bank will always be there to lend and support any banks facing a short-term financing crisis?

5) Will the capital adequacy and liquidity of banks be assessed on the basis of the wholly discredited Basel ll rules, the European Union's evolving plans for tougher capital and liquidity requirements, the yet-to-be agreed Basel lll rules or some interim compromise? This is a really vital question. Because it will make all the difference between whether European banks are forced to raise many billions of euros of new capital or whether there's an attempt to pretend that no big European bank needs to raise significant amounts of new capital.

There's little doubt in my mind that this will be a fraught exercise.

If, for example, European regulators adopted the approach taken last year by the Financial Services Authority - of saying that banks need to maintain a 4% ratio of core tier-one capital to assets throughout a cycle that could see us falling back into recession and further falls in property prices - well that would probably require significant sums of new capital to be raised by a number of European banks.

As it happens, British banks, having already been through this exercise, probably wouldn't need new capital right now - although some would on the basis of the direction of travel of the Basel Committee on Banking Supervision (but that's a story for another day).

But if capital is required by some big Spanish, or French, or Italian, or German banks, where will it come from?

Well, eurozone governments probably can't take for granted that private-sector investors will stump up all the necessary cash, in these fraught times. There may well be a requirement for individual states and their taxpayers to underwrite these fund-raising exercises - and we could see partial nationalisation of a few banks.

In other words, European governments face a very difficult judgement, having agreed to carry out these stress tests.

If the tests are rigorous and credible, then they may find themselves in the uncomfortable position of having to invest increasingly scarce public-sector cash into their banks.

But if the tests are perceived by investors to be a weak fudge, then they risk undermining confidence in banks that remain dependent on the support of private-sector creditors and investors for their survival.

Comments

  • Comment number 1.

    When you can do a stress test, you don't want to. And when you want to, you can't!

    Robert, please tell us why we pay these banker-dunces, when they can't figure out these simple things?!?

  • Comment number 2.

    Has anyone calculated the losses from the banking disaster?

    If they can answer that, they may, just may have a little of the data they'd need for stress-testing.

  • Comment number 3.

    When will the media get it into their collective dullard brains.

    EUROPE HAS HAD IT - IT'S ALL OVER BAR THE SHOUTING

    Still endless pieces written about how and where the next bailout will come from - THERE IS NO ONE LEFT TO BAIL ANYONE OUT - DON'T YOU REMEMBER WHAT HAPPENED IN THE LAST 2 YEARS?

    I'm just waiting for the collapse to happen - then I shall laugh at all the politicans, media pundits and economists who claim "unforseen circumstances" and "surprise" at the events - despite the fact it's been 'common sense' since the already historically indebted countries absorbed the debts the banks couldn't handle.

    Round and round and round we go - where is stops, nobody knows.....the carousel of media punditry goes on.

    These countries have liquidity issues brought on by strutural debt problems in a world where growth for the next decade is going to be 'lite' at the very best.

    You get yourself out of your 125% mortgage on your 300k house with your 'new job' in ASDA stacking shelves - because that's what is expected from these countries.

    The difference is that you probably run a pseudo-dictatorship at home - when you tell the family "there's no christmas this year" - they aren't likely to revolt and burn your house down in anger - this luxury is not one afforded to the democratic sovereign states. They will either lose power (revolution) or they will have to stop being democratic (fascist state) - there is no middle way, there are no more choices left.

  • Comment number 4.

    "Well, eurozone governments probably can't take for granted that private-sector investors will stump up all the necessary cash, in these fraught times. There may well be a requirement for individual states and their taxpayers to underwrite these fund-raising exercises..."

    So this means banks still too big to fail. If nationalisation will have to happen for a few of the banks then probably best to let one or two (at random) go to the wall, bank shares drop in value, goverments pick them up for next to nothing..... well let them all fail, pay out personal investment protection and start again.

  • Comment number 5.

    What a wonderful idea: American banks demanding European banks are stress-tested! Paranoia...that Europe is up to the same stuff?

    I mean, it's probably high time that the Eurobanks are tested (and capital assets ratio of 4% sounds frightfully inadequate. Under the B of E it was around 8% in the UK though my own bank held 9%) but on an American demand?

    I mean, America had some of the most highly regulated banks in the biz and they fell apart. And why? Because either the regulation failed or the bureaucracy failed (in that complaints made to the regulator weren't properly acted upon...until the collapse, then out came the reams of memos etc and congress at last started laying into people). Or the gov, just as in the UK, turned a blind eye to the excesses as long as big bags of tax were hurled their way.

    It's as bad as congress hammering BP, forcing them to pay for every little consequence of this accident...while they conveniently forget Bhopal and Union Carbide.

    What a bunch!

  • Comment number 6.

    One might have hoped that those charged with the governance of these organisations were doing this on a regular basis anyway - and disclosing any bad news in a timely manner to their investors & regulators.

    Would they really just close their eyes and hope that no-one notices the potentially catastrophic investments made on their watch....

  • Comment number 7.

    The problem arent the losses being faced on the sovereign debt, its the amount of leverage undertaken in process of gaining that exposure.

    Banks could easily bring their capital ratio's up by selling some of their risky assets. Why would this cause another recession? Because it would effectively be a fire sale and depress asset prices further. Lets get this stinking leverage out of the system once and for all. FSA and EU regulators moan about capital ratios, if banks struggle to maintain ratios of 10% isn't that a red flag right there? Here's a proxy for you, my bank won't let me buy a house with a 10% deposit because I may default, yet house prices are far less volatile than the financial markets and better yet, this wonderful bank itself will happily leverage in greater amounts.

    I think the problem is no one is willing to stick their neck out and call upon the type of drastic reforms the system requires.

    Who wants to form an independant joe public thinktank/lobby group with me?

  • Comment number 8.

    Individuals can be allowed to fail, companies to, but not nations.

    There’s only one way to save the European Union.
    The ECB will have to print more money and give it Greece, and then print some more and give it Spain, Portugal and Ireland, and anybody else who needs it.

    Those countries having operated with a degree of financial prudence may not like, but the prudent always end up paying one way or another.

    It ceases to be a European Union if they let member states fail, it just becomes a European nonsense.

    No bailout = No Union
    No Union = No need for Euro Politicians

    Now what would you push for if you were a Euro politician?

  • Comment number 9.

    Think that history would be kinder to Gordon Brown and his handling of the crisis then agenda driven press. The stress tests applied to UK banks seem to put in place a level of resilience being adopted across Europe, and the debt levels we have incurred in cleaning up the mess caused by the banks, were not lets remember caused by GB but an attempt to make sure we didnt time warp back to the 1930s.

    Depressingly however this has all happened before - Liars Poker is a book worth reading - and will happen again as financial instruments become more complicated and far beyond the understanding of sellers, buyers and regulators. A friend of mine has a Phd in Astrophysics from Edinburgh - and now works for Morgan Stanley designing financial products as her brain understands the maths behind it. I doubt many other people's brains do however.

  • Comment number 10.

    We seem to be stuck in this permanent cycle of doom ... If the regulators tell banks to set aside more cash, they will end up soaking up what little precious liquidity remains in the economy; thereby creating a self fulfilling prophecy. (ie, the act of boosting their reserves will create another dip in the economy, creating more bad debt, further denting the newly increased reserves within the banks). Conversely, if the regulators hold back on increasing the reserves, liquidity should rise, the economy grows (or at least does not recede); thereby reducing the scale of bad debt ... and avoiding the need to touch the reserves in the first place.

    One very tricky balancing act required ...

  • Comment number 11.

    It's all smoke and mirrors so don't expect an outcome even approaching something credible.

  • Comment number 12.

    The whole idea of "stress tests" just shows how much banks are ignorant of what is going on. Come on, you are computing "value at risk" every evening. Or redefine risk.

  • Comment number 13.

    Robert Peston,

    Your singular view of the Euro Zone from the outside is I am afraid faulty. The UK's fate is totally liked to the fate of the Euro Zone. Where they go we go - this is unavoidable. The City of London is the prime market maker in Euro bonds and collapse in the Euro will doubly injure London and Sterling.

  • Comment number 14.

    I have been harping on about this for some time.
    Repeating myself:

    The banks are the economy!

    They have their boot on the necks of the governments.
    They get told by the governments that they must have greater capital adequacy.
    The banks say OK. Please can we have some money?
    In turn the governments ask how much?

    We pay.

  • Comment number 15.

    Remove the log from your own eye Mr President :
    Audit the Fed ! :
    http://www.youtube.com/watch?v=kKE1SLB3oZ0&feature=player_embedded#!
    You Tube Search v=kKE1SLB3oZ0

  • Comment number 16.

    I am not an expert in this field (which may in fact be an advantage) and so do not understand all of the issues Robert has raised. That said I do understand that their is a key question as to the methodology to be adopted in undertaking these stress tests.

    Would it be possible for the members of the fourth estate to pose these questions to the persons or bodies undertaking these tests? I understand they are based in London.

  • Comment number 17.

    This to me, has the appearance of the stronger, preying on the weak. The wealthiest of families will be picking over the bones of the weak. That currency is no longer backed by gold, means that institutions like the Bank of England, the Federal Reserve, etc. can create these crisis' through the manipulation of printing money and then withdrawing it. It has worked for over a century. This coupled with creating continuous situations of war, enable the elite to continue to use these episodes of human misery for their own ends of financial success at the detriment of all else, but themselves.

    Thomas Jefferson wrote that, a bigger threat to their new country more than standing armies was the banks. That allowing them to print money, out of the people's control; was an open invitation for the result we see today. A reason for the war of independence, was that the English would not allow the colonists to print their own money. This may have been the largest cause behind the war of American Independence, one that is lost in the depths of time.

    That the largest, wealthiest families will be lining up to feast on the misfortunes of the people. Everything else becomes dissemination and cover-up for their success.

  • Comment number 18.

    Robert said 'In other words, European governments face a very difficult judgement, having agreed to carry out these stress tests.'


    The European governments will apply what they consider to be rigorous and credible tests to the banks, they will find that they have to invest some public-sector cash (but they will know in advance how much as they are designing the tests)

    The exercise will be carried out to reassure the markets.

    The investors will perceive that the tests are designed to deceive and confidence will be further undermined.

    Having now invested some public-sector cash into the banks the governments will feel obliged to cast more good money after bad.

    The private investors will be pleased that governments are investing in what everyone knows are zombie banks and the private investors will sell up and run for the hills leaving the taxpayers holding the baby.

  • Comment number 19.

    16. At 6:27pm on 18 Jun 2010, Cassandra wrote:
    I am not an expert in this field (which may in fact be an advantage) and so do not understand all of the issues Robert has raised. That said I do understand that their is a key question as to the methodology to be adopted in undertaking these stress tests.

    Would it be possible for the members of the fourth estate to pose these questions to the persons or bodies undertaking these tests? I understand they are based in London.

    --------------------------------------
    Good question. I would have thought there was a case for making the methodology public, and to ask for suggestions for improvement to made by anyone with some expertise, but for the results to be kept secret within the walls of the central Banks of member nations. And why just 25 banks? I would do the lot across the EU.

  • Comment number 20.

    I could be wrong about the inherent stability of Euripean banks; I could be wrong about their level of capitlization, but I think not.
    European leaders have agreed to publish full details of "stress tests" which they are sure (like me) will show the fundamental financial strength of individual banks. Results of stress tests will come next month as will tougher budget rules to restore confidence in the Euro.
    As for the Euro, it has risen to a three-week high against the dollar. Concerns about Spain's financial health eased after Madrid's successful sale of 3.5 billion euros in 10- and 30-year bonds.
    The EU is trying, and I think very succesfully, to address Euro by
    - planning for closer economic policy coordination and
    - agreeing on more transparent stress tests for top European banks.
    Angela Merkel after the summit in Brussels: "We established that all 27 (EU) countries have committed themselves to pushing through an improvement in transparency through stress tests and to publish that in July."
    In the meantime, the EURO rebounds!
    The euro, which fell to a four-year low against the dollar last week, rebounded to its highest level since late May; this came after the ease of Spanish bond sale and of course comments from a Spanish Economy Ministry source, who said the Treasury did not need to sell any more debt to meet a 24 billion euro repayment in July. Good news indeed!
    Hoping to convince investors they can contain the euro zone debt crisis, EU leaders said countries that do not meet budget and debt targets should face tougher sanctions (I disgree) and that budget plans should be submitted to the EU executive for peer review before national parliaments (I agree).
    They also agreed on the need for a European bank levy and said they would propose a financial transaction tax at G20 in Toronto on June 26-27. Some of Europe's partners oppose the idea; so does Canada.
    IMF Managing-Director Dominique Strauss-Kahn said more global efforts are needed on financial regulation and to tighten economic policy coordination in Europe.
    Really?
    I think the EU is doing well, very well in fact. I think the tightening up required is required in the United States. US Treasury Secretary Timothy Geithner has been pressing Europe for months to follow Washington's lead and come clean about the state of bank balance sheets.
    The EU has so far conducted only one stress test of its entire banking sector, not individual countries or banks. The results in autumn 2009 said the sector was sound and could withstand a much worse economic downturn than had taken place.
    German Bundesbank head Axel Weber said a new set of European bank stress tests would be taken. There seems little anxiety. If the IMF and the United States want EU transparency, that's what they will get. Then what?
    The process would involve bank-by-bank tests of Europe's 25 biggest lenders. Then what?
    Then I expect the Euro to heavily rebound against the dollar.
    French Economy Minister Christine Lagarde: "I cannot speak for other countries but certainly as far as (French) banks are concerned, I know that there is willingness to publish and no trepidation and no anxiety as to what will come out of it.
    Even Greece, struggling as she is, is on track. The EU, IMF and ECB, which are overseeing a 110 billion euro rescue for Greece, and its reforms confirmed Greek performance.
    Will European governments need to inject capital?
    No.

  • Comment number 21.

    I tell you this: I work for a major European bank, and I don't work in the UK, and they are pinning their hopes on the CEE. Without the CEE and without foreign (forced) asset sales, they wouldn't have been making any kind of profit at all, and they wouldn't have had a case for state aid in the first place.

    These are facts, by the way.

  • Comment number 22.

    I'm not sure what all the fuss is about, after all, our US buddy, Timmy is on the case. Just follow his advice along with his friend Ben.
    1) First you conduct a stress test whereby the banks can abandon standard accounting practices and hence avoid any embarrassing 'mark to market' valuations. Hence there is no need to worry about a possible 150billion euro loss on the Greek debt, since we can confidently claim a 100% return on the face value of any debts.
    2) Next you remove any left over toxic assets 'off balance sheet'.
    3) Then you get the ECB and BoE to continue to make cheap money available to the major banks, after which you invite them round to buy some government debt, making a tidy spread in the bargain.
    Alternatively, they can simply park the cheap money from the central bank in another account which earns a steady interest.
    4) Finally, having been so clever in generating profits from this exercise, they can continue to pay themselves fat bonuses.
    Voila! Everyone is happy with the Timmy-Ben shuffle. We then have two major government sponsored ponzi schemes going at the same time.
    Of course, the downside could be that unemployment will remain high and growth will be anaemic, but hey, the banks will be making money!
    Once again such bold initiatives will have saved the European financial system and ensured that Timmy and Ben can continue doing things the same old way back in the States.
    The 'smoke and mirrors' parlour tricks will ensure the European and UK stock markets return to their upward trajectories and the investment banks can continue to earn healthy fees from their trading activities for a while longer.

  • Comment number 23.

    9. At 3:13pm on 18 Jun 2010, LiarsPoker wrote:
    "A friend of mine has a Phd in Astrophysics from Edinburgh - and now works for Morgan Stanley designing financial products as her brain understands the maths behind it. I doubt many other people's brains do however."
    You might be interested to read this article in The Atlantic.
    www.theatlantic.com/magazine/archive/2010/07/monsters-in-the-market
    One taster quote from the article:
    "Bred and trained in secret by Citi’s financial engineers, Dagger can stalk through more than 20 markets, public and otherwise—hunting for anomalies, buying and selling, prowling through mountains of historical data—all at the behest of Citi’s clients."
    The thing that makes this system different to your usual run of the mill programme trading algorithms is that it is 'self-learning' and actually gets smarter over time (as with some robotics programmes). Hence it can 'evolve' strategies over time.
    It throws a light upon the direction the markets have been moving over the past decade; more importantly, it shows where they are going. This is not simply about bright mathematicians working out fancy algorithms for a black box system. 'Artificial intelligence' or AI (a long time dream of the computing industry since the 1970s) is starting to take its first steps in various industries, including finance. Already, it is estimated some 70% of trading on the NYC markets are done via programmed trading (not the same as AI), which is where they were so quick to point the finger when the US markets had their 'flash crash' on May 6 this year.
    If you enjoyed 'Liar's Poker' (good read), then you should enjoy this article.

  • Comment number 24.

    Is anybody going to be conducting "stress tests" on ordinary families?
    They will be the ones picking up the tab for all of this financial support thats been given to the banks.
    What the hell it may mean some families get broken up, marriages failing, homes repossessed, businesses failing when the credit is pulled.
    But the banks will still be ok paying the bonuses and shareholder dividends, but ask yourself this at what social cost?
    The laughable part is they expect everybody to go out and start spending at the same time! Living in cuckoo land the lot of them.

  • Comment number 25.

    This announcement on stress test has,in my view, been timed to take the focus off this issue in the lead up to, and during, the upcoming G20 meeting.

    The results will then be released late in July or early in August when all Eurocrats and many bankers will be on leave.

    Given this rather cynical approach I suggest the serious media (e.g. BBC, FT, NYT, WSJ, Reuters etc.) use the upcoming G20 meeting to put pressure on the EU to release details of the methodology to be used PRIOR to the results being released.

  • Comment number 26.

    Following post #23 I am amused at the thought of several pieces of computer kit running artificially intelligent (sic) software in obvious competition to each other actually defeating the logic of the programmers who coded them. No wonder the financial structure collapsed. It brings about the certainty of repeated collapses across the globe proving that money markets have no place in civilised society.

    So please can we ship the "greedy" software users and all those who enjoy watching people brought to their knees to those same offshore islands where the wretchedly guilty accountants already live and blockade them all to a life style every bit as miserable as the most unfortunate on our planet have?

    And while we are about it can we ship all those miscreant bureaucrats and politicians who peddle their "dope" in the EU in a suitably leaking vessel with only an evens chance of making it to one of those islands?

    And whilst I am having my rant can I also remind people that Thatcher thought it was good economic sense to let people buy Council houses on credit a few decades ago. Obviously she believed that living in debt was "good".

  • Comment number 27.

    8.Dempster wrote: Individuals can be allowed to fail, companies to, but not nations.

    There’s only one way to save the European Union.
    The ECB will have to print more money and give it Greece, and then print some more and give it Spain, Portugal and Ireland, and anybody else who needs it.


    We from the Netherlands could not be more utterly opposed to this than we are.

    No bailout = No Union
    No Union = No need for Euro Politicians


    Where do I sign up for this? An end to the undemocratic EU is my dream. I hope to be able to dance on its grave one day. Lets abolish the EU and restore democracy. Now who's with me?

  • Comment number 28.

    What does the Toxic Bank Spill have
    in common with the Toxic Oil Spill?

    'POOR' Regulation by the appropriate
    Government Regulatory Authorities.

    Until that's Rectified, there is NO
    point in Whining or Crying over Spilt
    Milk.

  • Comment number 29.

    Inject more capital?

    Ha Ha Ha ... Do you mean borrow more and more money ... off the Chinese ... in US dollars?

  • Comment number 30.

    The US is letting the Eurozone do some accounting for it here on the cheap ... because it doesn't know or understand how much its own US $ currency is affected by the 'risks'

    Another way of saying ... I know let's ask them what's happening with their banks ... first.

    Globalisation without a global central bank regulator just does not work... just as a EU zone and EU currency with am incompetent and ineffective ECB does not work.

    The Chinese are dependent on the US dollar because no one would trust them with their own currency ... and they're a UN security Council member!

    Austerity and conservatism is now the only safe game in town. The Basel this that and the other is a waste of space ... and the Asian markets and currencies will now want their say.

    The key point is what currency will oil be priced in as the global fuel shortage crisis develops going forward ... as depressing amarkets and a global recovery and this will determine what currencies governments will want to hold as reserves and borrow with and against.

    Nature will have the last say here ... not the markets.

  • Comment number 31.

    It's the high time the big European banks went bust if they failed to produce profits. There must be an end of supporting private enterprises such as banks with taxpayers money. The very idea of being TOO-BIG-TO-FAIL is a toxic one and as long as this attitude towards the banks prevails we common taxpayers are going to foot the governments and big banks bills of failure. Enough is enough!

  • Comment number 32.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 33.

    One problem in all of this is that government debt is not put into the context of a government balance sheet. If government puts capital into a bank, there is a very good chance that it can get it back. In other words it's an investment not a loss. Perhaps we should start thinking much more about national balance sheets rather than simply levels of borrowing.

  • Comment number 34.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 35.

    Governments, corporations and bankers (or are they the same thing?) all rely on the people who fund them - us the taxpayer. Consequently they will never give us the full extent of bad news, in case we stop funding them.

    Electorates in democracies should expect their government, using regulations, to protect them from the excesses of corporations and bankers, but unfortunately lobbyists representing business have the loudest voices and the deepest pockets.

    Look at
    http://www.opensecrets.org/news/2010/06/report-revolving-door-spins-quickly.html
    which gives you some idea of the intimate links between Congress and Wall St.

    and this
    http://www.opensecrets.org/news/2010/06/big-oils-love-for-lincoln-and-more.html
    ditto the oil companies

    So of course the banks will pass the "stress tests" as a loss of confidence would result in a failure or the need to be bailed out by the ECB (Oh that's us again) as TBTF

    Good for business might not the same as good for society.

    twinturbo

  • Comment number 36.

    The answer is that of course Eurozone governments will have to inject capital and so will the UK government.

    If banks are to operate with larger capital ratios, they will be unable to lever up the money supply to the level required to bring economic activity back up to pre-crunch levels, unless there is a substantial increase in the money supply.

    The best way to do this is as Keynes recommended. Public investment funded by printing money.

    Alarmingly, most European governments have been frightened by the fears expressed by economically illiterate city pundits into doing the opposite. The Greek crisis would never have happened if the ECB had been allowed to step in and give euro denominated bonds unconditional support, as any normal central bank would have done.

  • Comment number 37.



    I do hope that "EU"-lovers do not think that people like me will be prepared to defend their Greater European Reich if it is ever at war.

  • Comment number 38.

    27. At 10:23am on 19 Jun 2010, mvr512 wrote:

    " ...An end to the undemocratic EU is my dream. I hope to be able to dance on its grave one day. Lets abolish the EU and restore democracy. Now who's with me?"

    EUpris: I'm with you Brother! So are millions of so-called citizens of the so-called "EU".

    Maybe hundreds of millions.

  • Comment number 39.

    36. At 5:52pm on 19 Jun 2010, stanblogger wrote:

    " ...

    The best way to do this is as Keynes recommended. ..."

    EUpris: The best thing the "EU" can do is what Keynes did. Die!

  • Comment number 40.

    Stress tests on Euro Banks - at last!!
    Ironic isn't it? After berating British Banks and people for excessive risks, our neighbours are having to do what the previous Labour Government did two years ago: make a proper assessment of our national liabilities, and then cover them with their taxpayers' guarantees. The consequences of these tests will cost their taxpayers dearly!
    German, French, Spanish and Italian Banks have taken big risks: buying US debts, Greek Bonds and loans to east & central European debtors. Not to overlook their much larger risks in un-funded pension schemes.
    That's why the UK can afford to carry a larger structural debt: our other bank & pension liabilities are much less than in many other countries.
    Since risk is relative term, we could say that UK Bond risks are comparatively low. Maybe that's why the inflation-adjusted return on UK Government Bonds are lower than Eurozone Bonds? Maybe markets have been pricing some of the stress risks into those Bonds? Now we may find that out.

  • Comment number 41.

    This whole crisis has been caused by crime. Whether it's greek doctor carrying out tax fraud or the home buyer lying about their income committing mortgage fraud, the finance minister lying to the legislature committing perjury, or bonus grabbing banker knowingly selling doomed 5-6x join income MBSs and their derivatives to defraud pension funds.

    LOCK THEM UP AND CONFISCATE THE PROCEEDS OF THEIR CRIMES.

    As for stress testing, the ECB will do what the US and UK did, mark to a "fair value" which limits the need to re-capitalise and print the billions needed to keep the show on the road.

    What amazes me is the continuing belief we have avoided a depression.

  • Comment number 42.

    Why should more public sector money be injected into private sector businesses? The private sector now sees the government as an easy tap for cheap money, turn it on when they want some more.
    The banks should be rolling in money with base rates so low at 1% and credit cards still being charged out at 19%-28%! Mortgages like wise they are being charged out at 5-6% so where is all this surplus cash going?
    Time to stop the cash handouts and let them fail if they still cannot make money on these interest rate differentials.
    Lock the people up who committed the crimes and basically lied to get what they want and pull the plug on the banks that are too far gone.

  • Comment number 43.

    This selling of debt on to someone else has to stop, default swaps enable unscrupulous dealers to dump debt across country boundaries.They make money by moving debt around like pass the parcel.
    When the music stops the country/bank holding the debt at that point in time is the one that gets burned! And many countries have been burned!
    This debt situation is not over by a long shot, if banks start to pull the plug on more businesses and householders they will unleash a 1930`s slump and it will mean the end for the banks too loads of them will collapse.
    Still cannot figure out where all the money is going from the large interest rate differentials.Somebody is making a lot of money some where see my comment 42.

  • Comment number 44.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 45.

    In my foolish youth I was a gilts analyst, making lots of money by, for example, switches, which never involved buying or selling anything, merely picking up a cheque from a broker once the gross redemption yields had reversed. I am sure commercial parasitism has moved on since then.
    Can someone explain how these financial manipulations are different from printing money? Maybe if they papered their walls with all this pretty paper it woud be OK. But, like most people they buy manufactured goods with it.

  • Comment number 46.

    The bigger question is not how the stress tests are done, it is will they be followed by action to fix the banks?

  • Comment number 47.

    Well, once again there is no media attention being given to the fact that gold has hit yet another new high at $1259 an oz. So despite the rebound on the FT100 and other European markets there are plenty of investors who think the worst has yet to come and that europe’s debt problems are far from over.

  • Comment number 48.

    This comment was removed because the moderators found it broke the house rules. Explain.

 

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