IMF welcomes banking stress tests

The International Monetary Fund (IMF) has welcome the recent European banking stress tests in a press release dated found here.

“The Fund welcomes the EU-wide stress test exercise carried out under the auspices of the European Bank Authority (EBA) and the strengthened methodology and assumptions that have been applied across the banks in the exercise.

“The disclosure of the very detailed information accompanying the release of the stress test results will allow market participants to form a considered view of the soundness of the banks participating in the test. We hope that this elevated degree of transparency becomes a permanent feature at the level of national jurisdictions.

“The outcome of the exercise reflects efforts made by individual institutions and national supervisory authorities to strengthen bank balance sheets, but more needs to be done. The Fund considers it important that national authorities have promptly committed to address the pockets of vulnerability detected through the stress test exercise, and strongly advocates that the necessary measures are taken to effectively address weaknesses not only in institutions that have ‘failed’ the test, but also in those that have only narrowly passed it. More generally, in light of the current turmoil, the Fund would emphasize the importance of further strengthening capital buffers.”

Eight banks of 90 tested failed the stress test. Of these, five of the eight were Spanish banks.

Economists are worried that any turbulence resulting in further damage/weakening to the Euro could deepen the sovereign debt crisis.

Member states will be gathering next week to try to come together to solve the Greek debt problem.

If the Greek debt problem is not solved it could have knock on affects to the rest of Europe, with Spain looking particularly vulnerable following the results of the stress test. Portugal, Ireland and Belgium are all next in line.

Could Spain suffer at the hands of the credit ratings agencies in the weeks to follow?

Article by