This one should probably be categorized under “the operation was successful but the patient died.”
On 29 July, the Wall Street Journal declared the European bank stress test to have been a success.
European regulators gave most banks a clean bill of health in “stress tests” despite the Continent’s sluggish growth and low interest rates, saying only a clutch of lenders would struggle to ride out a hypothetical severe economic downturn.
Since then, European bank stocks have plummeted, falling from a high of 135 to a current low of 126.
And this stress test wasn’t even much of a test:
The latest tests have already come under fire for not capturing shocks such as the UK’s unexpected decision to leave the EU, and negative interest rates. While they do include market shocks that are more severe than those seen in the immediate aftermath of the Brexit vote, the scenario does not capture the outsize risk for certain banks.
So, as Tyler Burden explains,
If the goal of the EBA Stress Tests was to reassure investors and regain confidence that ‘all is well’ in Europe’s increasingly fragile and systemically interconnected banking system, then it has utterly failed.
