- "The European Bank stress tests released Friday evening delivered on both toughness and transparency. The more surprising element was that the capital shortfall of the 7 failed banks “only” amounted to €3.5bn. The one disappointment was that the sovereign stress test was only applied to the banks’ trading books. Counterbalancing this, however, the adverse scenario was tougher-than-expected on commercial, consumer and real estate loan losses."
- "While we find the stress tests to be good news on balance, several headwinds loom. First, European banks still have €197bn of government support. Second, there is still substantial uncertainty surrounding the types of capital needs that will result from Basel 3. Finally, the challenge of taming public finances still lies ahead."
- "Against the backdrop of a still frail economic environment, we still see a bumpy road ahead. Ultimately, the key variable for both banks and sovereigns is market funding conditions. If these deteriorate, the ECB would be ready – if necessary - to offer more liquidity to banks. Moreover, the ECB could also increase the SMP. Finally, the EFSF is now operational and could offer support to weaker euro area member states (and we would not be surprised to see some of the weaker sovereigns apply for assistance)."
SocGen European Bank Stress Tests 20100725
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