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Bailout

: Calculated Risk

European Stress Tests and more

By Anonymous

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From the WSJ tonight: Europe's Bank Stress Tests Minimized Debt Risk

We've discussed this several times - as an example, in Part 5D of the sovereign debt series, "some investor guy" wrote:

Q1. Was there much sovereign stress in the European bank stress tests?

NO. The most glaring oversight, in the opinion of the author and many other analysts, is assuming there would be no sovereign defaults, and thus not showing any losses on the bank?s long term holdings (in the banking category vs the ?trading book?). According to the Committee of European Banking Supervisors, the sovereign stress scenario results in ?39 billion euro associated with valuation losses of sovereign exposures in the trading book ?.

?The haircuts are applied to the trading book portfolios only, as no default assumption was considered, which would be required to apply haircuts to the held to maturity sovereign debt in the banking book.?

Note: Here are links for the entire sovereign debt series.

  • Here is the weekly summary for last week (a busy week).

  • And the Economic Schedule for this week (a light week).

    Full post as published by Calculated Risk on September 07, 2010 (boomark / email).

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