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Fri 07 Jul 2010Stress test should have included sovereign debt default
SERIOUS MONEY:THE MUCH-awaited EU banking stress test results were released with much fanfare last Friday. The tests revealed that the European banking system is relatively well-capitalised and capable of weathering adverse shocks stemming from either a double-dip recession or elevated sovereign risk. Financial markets responded well to the results, though the entire process has been derided by many analysts as a sham.
The amount of disclosure and transparency was a welcome surprise, but the test itself was not particularly stressful and, as a consequence, the results are likely to be only a small step in returning the interbank market to normalcy.
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