by Patrick Jenkins
Financial Times
March 14, 2011
So who’s right? Are Europe’s bank stress tests truly stressful, as the regulators who are conducting them claim? Or are they something between a joke and a fudge, as much of the investor community seems to believe?
The fashion for stress-testing banks in public – submitting their operations to a host of worst-case scenarios about the outlook for the economy, interest rates, bad debts and so on – has caught on in the wake of the financial crisis.
Understandably, regulators want to ensure that banks have sufficient capital (to withstand losses) and sufficient liquid funds (to withstand a seizing-up of funding markets or a spate of withdrawals by panicky depositors), no matter what happens.
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