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Sunday, July 25, 2010

European Bank Stress Tests vs. U.S. Stress Tests Part 2

I think that these stress tests are the equivalent of only testing what happens to a patient's heart when they walk ten feet. Bloomberg has a good article on the subject here: http://www.bloomberg.com/news/2010-07-23/eu-bank-stress-tests-fail-to-reassure-investors-wary-of-capital-criteria.html

In our stress tests, several banks were found to be in need of tens of billions in new capital, which they subsequently raised from markets that were satisfied about the stress tests' rigor. In this case, I rather doubt markets will be satisfied once they have time to digest the results.

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