BBC News
October 5, 2011
[A]s the FT reports this morning, the European Banking Authority (EBA) - the top regulatory body for Europe's banks - is debating how and whether to subject European banks to a new round of health tests or stress tests.
The penny has dropped that the last stress tests, whose results were published as recently as 15 July, were not credible - for the reason that was conspicuous at the time, which is that eurozone governments would not allow European regulators to build into the assessment of the strength of banks the possibility that any eurozone government may not be able to repay their debts.
So if there are to be new stress tests - and in practice the EBA will have to agree with eurozone governments before such tests take place - they will for the first time assess the losses that banks would incur in both their "banking" and "trading" books from a writedown of the debts of nations with huge deficits or debts, such as Greece, Italy, Spain, Portugal and so on.
You can see this as creeping progress towards putting adequate shock absorbers into the eurozone's financial system.
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