The intention is good, but with their own policy differences, can the Euro zone countries successfully execute the stress test?
What works for one might not work for another! Policy makers at the European Union seem to have simply ignored this age-old saying. They have not only instructed the Committee of European Bank Supervisors to organise a stress test on the European banking system, but are also planning to keep the exercise similar to the ones recently completed in the US and UK. And, no wonder, the decision seems to be in a hurry!
Raison d’être: European banks are under immense pressure. As per the European Central Bank (ECB), lenders in the Euro zone will have to write off $283 billion in the next two years as loans to corporations and households go bad. In fact, Moody’s has just slashed the credit ratings of 25 Spanish banks, arguing that the speed and severity of Spain’s recession will inevitably hit their balance sheets. And that’s the case with almost all member states. “Policy-makers and market participants will have to be alert in the period ahead. The credit cycle has not yet reached a trough,” says the latest Financial Stability Report from ECB.
Moreover, there has been no clear policy initiative till now to force European banks to raise their capital cushions, despite the fact that the region has the biggest problem with toxic assets. According to the International Monetary Fund (IMF), the global banking system holds $2.8 trillion in toxic assets, with a little over half – $1.426 trillion – on the books of Western European banks, while US banks account for only $1.05 trillion. In fact, IMF estimates that it would take a fresh $975 billion to recapitalise Western European banks to levels that prevailed in the mid-1990s, compared to $500 billion for the US banks.
What works for one might not work for another! Policy makers at the European Union seem to have simply ignored this age-old saying. They have not only instructed the Committee of European Bank Supervisors to organise a stress test on the European banking system, but are also planning to keep the exercise similar to the ones recently completed in the US and UK. And, no wonder, the decision seems to be in a hurry!
Raison d’être: European banks are under immense pressure. As per the European Central Bank (ECB), lenders in the Euro zone will have to write off $283 billion in the next two years as loans to corporations and households go bad. In fact, Moody’s has just slashed the credit ratings of 25 Spanish banks, arguing that the speed and severity of Spain’s recession will inevitably hit their balance sheets. And that’s the case with almost all member states. “Policy-makers and market participants will have to be alert in the period ahead. The credit cycle has not yet reached a trough,” says the latest Financial Stability Report from ECB.
Moreover, there has been no clear policy initiative till now to force European banks to raise their capital cushions, despite the fact that the region has the biggest problem with toxic assets. According to the International Monetary Fund (IMF), the global banking system holds $2.8 trillion in toxic assets, with a little over half – $1.426 trillion – on the books of Western European banks, while US banks account for only $1.05 trillion. In fact, IMF estimates that it would take a fresh $975 billion to recapitalise Western European banks to levels that prevailed in the mid-1990s, compared to $500 billion for the US banks.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
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Ranked 1st in International Exposure (ahead of all the IIMs)
Ranked 6th Overall
Zee Business Best B-School Survey 2012
Prof. Arindam Chaudhuri’s Session at IMA Indore
IIPM IN FINANCIAL TIMES, UK. FEATURE OF THE WEEK
IIPM strong hold on Placement : 10000 Students Placed in last 5 year
IIPM’s Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri – A Man For The Society….
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM B-School Facebook Page
IIPM Global Exposure
IIPM Best B School India
IIPM B-School Detail
IIPM Links
IIPM : The B-School with a Human Face
IIPM – FLP (Flexi Learning Program)
