What is the purpose of European bank stress tests?

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What is the purpose of European bank stress tests?

ตั้งหัวข้อ  sunny on Sat Jul 24, 2010 11:53 pm

Europe is set to publish on Friday the results of a stress test taken by 91 European banks. The purpose of the test is to reassure markets of the solidity of the banking sector. A first stress test was performed in 2009.

By Sébastian SEIBT (text)

What is the point of a stress test?

Banks undergo financial simulations that are supposed to test their resistance in circumstances of severe economic instability. The Committee of European Bank Supervisors then uses the test results to evaluate whether a bank needs extra funds. The results published on July 23 are in a way a health report for European banking establishments. The stress tests have been administered at a moment when several European countries, especially in the south, are undergoing a period of financial turbulence. Authorities hope that the results will reassure financial markets quick to speculate on difficulties in the euro zone.

How are these tests administered?

The test were carried out in July. Economists from the Committee of European Bank Supervisors created various scenarios. Based on data given by the banks being tested, the economists made projections. Two initial hypotheses were posed. One was based on projections of normal growth, the other on a bleaker economic picture. In the second scenario, the experts lowered current growth predictions in the euro zone by three points. In both cases, they included the famous problem of sovereign debts. So for Greece, they predicted a decrease of more than 16% in the value of government bonds, while only 0.7% for France.

Which banks are tested?

When the last stress test was carried out in 2009, only 22 banks were involved. This time, the Committee of European Bank Supervisors aimed for more. In total, the European regulator targeted 91 establishments. The list represents 65% of the European banking sector and 50% of the sector in each country concerned. Spain is the country with the most banks tested (27). Germany has 14, while in France, where the banking sector is very concentrated, only four banks were tested.

What were the criticisms levelled against these tests?

The main criticism of European stress tests is that they don’t go far enough. Certain analysts bitterly regret that no hypothesis included a case of a country simply going bankrupt -- a relevant scenario, given what happened with Greece. The markets have also expressed scepticism about the numbers given for the decrease in the value of government bonds. Another independent stress test administered by Citigroup and Moody’s had Greece with a 40% decrease in government bond value. That is a major departure from the 16% posited by the Committee of European Bank Supervisors. These criticisms have pushed some people to conclude that the results released Friday will not be taken seriously by the markets – in which case, the EU will have failed in what it had set out to do.

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Re: What is the purpose of European bank stress tests?

ตั้งหัวข้อ  sunny on Sat Jul 24, 2010 11:56 pm

Stress tests to measure resilience of European banks
The results of a "stress test" administered by regulators to Europe's banking system will be revealed on Friday. The outcome will show whether banks are strong enough to cope with another crisis or whether they would need more cash to stay afloat.
By News Wires (text)

AFP - The European banking system faces a moment of truth Friday when regulators reveal whether it is strong enough to cope with any fresh crisis or needs another huge injection of cash to keep it afloat.

Much depends on the outcome.

The authorities are claiming that the results of the 'stress tests' on 91 top lenders will largely be positive, with any problem banks requiring more capital likely to be corralled off safely and then bailed out.

Analysts say that would be a positive outcome -- but the tests have to be rigorous and tough enough to convince investors that the books have not been cooked to produce the desired results.

It is about confidence, they say, in the banks, in the regulators, in the financial system and ultimately in the prospects for recovery from the worst recession since the 1930s.

"We should all be bracing ourselves for relief to flow through European financial markets (on the results)," Credit Agricole strategist Mitul Kotecha said.

"More likely, questions will be asked about why did so few banks fail and why the tests were not rigorous enough?"

The global financial crisis devastated the banks, claiming victims among the most iconic names in the business as once abundant credit markets dried up.

Others had to be bailed out to the tune of tens of billions of dollars (euros) by governments who effectively covered the bad debt of the banks by borrowing extensively themselves through issuing bonds.

That at least stabilised the economy, allowing a recovery from early last year, but the cost was heavily indebted governments whose own troubles now threaten the recovery they worked so hard for.

The markets reason that if governments such as Greece and Spain face problems managing their debt, then their sovereign bonds, bought up by the banks to bolster their books, might now be worth a lot less.

Investors want to know exactly how much less, so they can judge if the banks are really sound and can be trusted to pay back what they borrow.

At the same time, governments with huge debt burdens are slashing spending to balance their budgets, which puts economic growth at risk, in turn hitting business and the banks which fund it, to create a dangerous vicious circle.

The problems came to a head earlier this year when Greece had to seek an IMF-EU bailout and Brussels with the International Monetary Fund set up a trillion-dollar fund to protect the whole eurozone project.

To ease nerves, the authorities agreed to test 91 lenders, accounting for 65 percent of the European banking system, promising they would stop the rot and restore credibility, as a similar exercise had done in the United States.

The IMF warned Tuesday of what was at stake.

"Some uncertainty regarding the stringency of the tests is likely to remain," the IMF said in the report, calling for more transparency and a wider assessment to be made.

The Fund said it wanted "a more detailed disclosure" of outcomes, together with remedial actions by weak institutions to cope with low capital levels.

Stock markets rose sharply on Thursday, in part as investors anticipated a largely positive review of the banks which posted some very sharp gains.

In London, which gained nearly two percent, analyst Michael Hewson of CMC Markets said banks were well-supported, partly on "an expectation that the larger banks should pass (Friday's) stress tests without too many problems."

Analysts said, however, that the key issues remained.

"The stress tests now need to give us two crucial indications," said UniCredit analyst Loredana Federico.

"First, how much more will banks suffer if (economic) growth is significantly lower and sovereign bonds come under more pressure, and second; how many ailing banks are hiding behind the veil of ... reassuring eurozone numbers," Federico said.

ING strategist Jeroen van den Broek said "the greatest fear is that the tests show too little diversification between the good, the bad and the ugly, and is seen by the market as being too optimistic.

"The outcome simply must be realistic; a true classification of the European banking system with necessary capital injections lined up will, in the long term, be beneficial to banking confidence," he said.

The test results are to be published by the London-based Committee of European Banking Supervisors at 1600 GMT on Friday.

They are expected to show how each bank would cope if economic growth slows sharply, if money owed is not paid, if stock markets plunge or if there is a crisis which slashes the value of government bonds on their books.

The bottom line of the tests is how the balance sheets of the banks would look once they had been adjusted for the effects of such shocks -- in other words, would they have enough capital to continue operating.

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Re: What is the purpose of European bank stress tests?

ตั้งหัวข้อ  sunny on Sun Jul 25, 2010 12:00 am

Seven out of 91 European banks fail stress tests

Seven out of 91 European banks failed to pass tests measuring their ability to withstand an economic downturn, the Committee of European Bank Supervisors said on Friday, with banks in Germany and Spain being noted as weak spots.

REUTERS - Seven European banks would not be strong enough to withstand another recession and would face a capital shortfall of 3.5 billion euros ($4.5 billion), tests run in an attempt to revive investor confidence showed on Friday.

Five of Spain’s smaller regional lenders, known as cajas, failed the test and their recapitalisation is likely to speed a restructuring of the troubled sector.

Banks in Germany and Greece were also seen as weak spots and in need of restructuring, but state-owned Hypo Real Estate was the only German lender to flunk and state-controlled ATEbank was the only Greek bank to fail.

Analysts had expected five to 10 banks to fail the test. As expected, no big banks failed the health check.

German government bond futures hit one-month lows and the euro briefly pared its losses against the dollar after the results were released.

Europe tested how 91 banks would cope with another recession and losses on government debt after the Greek crisis hit markets and raised fears the euro zone could unravel.

It aimed to repeat a health check on U.S. banks last year that helped restore investor confidence and underpinned a recovery by bank shares.

The Committee of European Bank Supervisors said its test was more severe than the U.S. health check of its banks. The adverse scenario in Europe was a one in 20 years possibility, compared to a one in 7 years probability in the U.S. test, it said.

But markets have had their doubts.

“I see nothing stressful about this test. It’s like sending the banks away for a weekend of R&R,” said Stephen Pope, chief global equity strategist at Cantor.

Under the most severe scenario banks were tested on how they would cope with a moderate recession this year and next, with additional losses on government bonds.

Any bank whose Tier 1 capital ratio falls below 6 percent by the end of 2011 failed the test, and would be expected to raise funds to make up the capital shortfall.

Of most concern to investors was that government bond losses were only applied to trading books, and not hold to maturity bonds, as the test did not consider there was a risk of any sovereign default.

Banks’ holdings of government bonds were subjected to a 23.1 percent loss on their Greek debt, a 12.3 percent loss on Spanish bonds and a 4.7 percent loss on German debt, all based on 5-year bonds and their value at the end of 2009.

Spain, Germany in Spotlight

The hunt for weak spots in European banking has focused on Spain’s regional savings banks, as well as regional German lenders, known as landesbanks.

Spain and Germany have set up funds to help weak banks recapitalise and Spain wants more cajas to merge.

With the latest data showing signs of a strengthening recovery in Europe, banks could find themselves in a healthier position than expected.

A stress test on U.S. banks early last year helped draw a line under worries about the sector there. European regulators were aiming to achieve the same.

But there have been clear splits in the 27-nation EU about how to model the test and how much to divulge, stoking worries that it will be less credible.

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Re: What is the purpose of European bank stress tests?

ตั้งหัวข้อ  sunny on Tue Jul 27, 2010 6:06 pm

Denmark pleased with results of bank stress tests

The Danish government Friday expressed satisfaction with the high grades scored by all participating Danish banks in the European bank stress tests.

Danske Bank, Jysk Bank and Sydbank took part in the tests in which 91 European banks were examined by European Union (EU) authorities to test their ability to cope with worsened economic conditions, and all the three banks passed the tests.

"All the three Danish banks and Nordea bank passed the test, which confirmed the good health of the Danish banking sector," said the Danish Finance Ministry, cited by the Danish daily Politiken.

Banks which failed the tests will be labeled "uncredited" and face the risk of losing their banking licenses.

The tests, carried out by the EU's Committee of European Banking Supervisors (CEBS), assessed the banks' balance sheets to see whether they would be able to stay in business if the European economy and sovereign debt crisis became worse.

The aim of the tests is to reassure investors and boost market confidence.

The CEBS released test results Friday evening. The major EU banks were proven to be robust and resilient, showing they had enough capital to survive a further economic or sovereign-debt crisis.

Seven banks did not pass the tests. They were Germany's Hypo Real Estate, Greece's ATE, and five Spanish banks, Cajasur, Banca Civica, Caja Duero, Caixa Sabadell and Caixa Catalunya.

Source: Shanghai Daily

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Re: What is the purpose of European bank stress tests?

ตั้งหัวข้อ  sunny on Tue Jul 27, 2010 6:11 pm

UBS and Deutsche Bank results reassure after stress tests

By Lisa Jucca and Edward Taylor

(Reuters) - Results from two of Europe's top banks, UBS (UBSN.VX) and Deutsche Bank (DBKGn.DE) reassured investors following last week's European Union tests of the sector's ability to withstand financial shocks.

UBS (UBSN.VX), whose shares shot up 8.5 percent, benefited from its strength in equities and the fact that it had slowed the rate at which rich private customers withdrew funds.

Analysts said results at UBS (UBS.N) showed Chief Executive Oswald Gruebel's tough restructuring strategy was producing results as the industry, including U.S. banks such as Bank of America Corp (BAC.N), Goldman Sachs (GS.N) and Citigroup Inc (C.N), grapples with the European sovereign debt crisis.

Clients drained a total of about 5 billion francs at the Swiss bank's wealth and asset management divisions, the lowest quarterly withdrawal UBS has experienced since it started to bleed assets at the start of 2008.

UBS chief Gruebel said he is confident the bank can stop client outflows this year
"The results are rather good. The rebuilding of the business is working successfully," said Helvea analyst Peter Thorne.

"We may start to see inflows at the end of this year, beginning of next."

UBS turned in a net profit of 2 billion Swiss francs ($1.90 billion), its third quarterly profit in a row after a string of losses following the financial crisis and a tax row. It was well above forecasts for 1.34 billion francs.

On a net profit level, Deutsche Bank outperformed posting 1.5 billion euros in net profit against a poll consensus of 1.04 billion euros, sending the 2 percent shares higher in early trade.

But compared with Swiss rival UBS Deutsche looked less impressive.

"Deutsche Bank's Q2 2010 results are disappointing versus consensus as well as UBS," analyst Andrew Lim said, pointing to a 44 percent drop in revenues from its fixed income currencies and commodities division.

Germany's top lender Deutsche posted second-quarter pretax profit in line with expectations, helped by sharply lower loan loss provisions amid weaker industry trends in investment banking.

Its corporate banking and securities division, run by 47-year old Anshu Jain, posted 779 million euros in pretax profit. These accounted for the lion's share of 1.52 billion euros ($1.96 billion) in group pretax earnings.

Deutsche performed less strongly than in the first quarter, but 16 percent stronger than during the year-earlier period, mirroring a trend among U.S. peers like Goldman Sachs (GS.N) and Morgan Stanley (MS.N).

Deutsche Bank reiterated it expects to reach its 2011 target of 10 billion euros from its core businesses but added a note of caution.

"While some of the environmental variables are in line with or ahead of our assumptions, others have not yet reached the expected levels, particularly with respect to the normalization of interest rates," the bank said in its quarterly report.

On Thursday, Credit Suisse posted second-quarter profit of 1.6 billion francs, helped by tax and accounting gains.

($1=1.052 Swiss Franc) ($1=.7746 Euro)

(Writing by Lisa Jucca and Edward Taylor, Additional reporting by Katie Reid in Zurich; Editing by Louise Heavens)

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Re: What is the purpose of European bank stress tests?

ตั้งหัวข้อ  sunny on Thu Jul 29, 2010 6:19 pm

King condemns banks' treatment of customers
By Sean O'Grady, Economics Editor

The Governor of the Bank of England, Mervyn King, has described as "heart breaking" the way some banks are treating business clients who had been customers for many decades.

Mr King revealed his frustration with the way the banks were failing to support the real economy as he told MPs on the Treasury Select Committee: "I meet many people who run small and medium-sized enterprises and the thing that really makes them angry is that, having built up a business often over several generations and had the same banking relationship for 60, 80 years, then suddenly comes a letter churned out of a computer saying the terms of our relationship have changed and I have seen many of these."

"It is heart-breaking sometimes. It is a lot harder to build a business than it is to sit in London and trade away."

The Governor added that existing lending agreements between the Government and banks were "not effective" because they set targets for gross lending, whereas "what matters is net lending". While he did not think the banks were deliberately trying to be difficult, and some suffered from weak balance sheets, "I do think we should try to encourage new entrants because they won't have the same legacy of balance sheet difficulties, there is... plenty of scope for long-term reforms".

Mr King raised the question, for the Government, of "what is the role of the state-owned banks?" The Chancellor, George Osborne, and the Business Secretary, Vince Cable, launched a Green Paper earlier his week on lending. Mr Cable urged banks to limit bonus and dividend payments to "pre-crisis and 2009 levels respectively".

The Governor called again on the banks to help repair their balance sheets by retaining their earnings and not distributing them through higher dividends or excessive remuneration, rather than cutting back on their lending. He said bankers' claims that there was no demand for credit was "not an adequate response". He called again on the Government to encourage new competition so that hard-pressed firms might have somewhere else to turn. "If there are impediments in the current regulatory we should do our best to try to work through that," he said. As if on cue, one tiny new entrant, Metro Bank, opened for business in west London yesterday.

Dampening expectations that the recovery was yet well established, Mr King downplayed the significance of last week's announcement that economic expansion in the second quarter ran to 1.1 per cent.

"On the face of it, that's encouraging. But we must be careful not to read too much into one number," Mr King said. "The wider economic problems around the world underline the fact that we can't be confident that the recovery in demand, output and employment here in the UK will be sustained."

However, the Governor indicated that sluggish growth would be accompanied by inflation that will remain above the 2 per cent official target for another year and a half or so. "Given the changes to VAT announced in the Budget, it's likely that inflation will remain above target for much of next year." The deputy governor for Monetary Policy, Charles Bean, added: "Inflation has surprised us on the upside fairly consistently in the recent past. Some of that is because there have been unexpected events like oil prices that are substantially higher now than they were two years ago, but there are other aspects where basically our initial judgement about the inflation process turned out to be incorrect. In particular, it looks as if the effect of the depreciation of sterling has been rather larger and faster than we were expecting."

The Treasury Committee also took evidence on so-called "macro prudential regulation", which aims to restrict the sort of explosion of credit that contributed to the recent financial crash when it starts in 2012.

The new Financial Policy Committee, proposed in a recent consultative paper, would oversee the policy and be chaired by Mr King, but, in answer to questions from the Committee, Mr King said that the Chancellor is "in charge" in all decisions involving public funds. Mr King agreed that a more powerful Bank would have to be accountable to Parliament, the Government and public.

More power to MPs?

Andrew Tyrie, chairman of the Treasury Select Committee, told The Independent yesterday that he wanted Commons select committees to win the sorts of powers enjoyed by their US peers, which will lead to speculation that he would like the committee to have a veto over the appointment of the Governor of the Bank of England.

Mr Tyrie said: "We do have something to learn from the Congressional Committees who have taken over the primary role of scrutiny in the US and have the power to call for papers, to subpoena witnesses and enjoy far greater resources." Mr Tyrie also welcomed Mervyn King's call for more competition in banking.

Mr Tyrie defended the chairman of the Office for Budget Responsibility, Sir Alan Budd, as a figure of "complete integrity. It was no doubt his sense of public duty that persuaded him to come back and produce the forecasts for the first Budget of the coalition Government."

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Re: What is the purpose of European bank stress tests?

ตั้งหัวข้อ  sunny on Tue Aug 03, 2010 12:49 am

Basel allows banks to play the same dangerous game
Robert Peston

Before you read on, do me a small favour and click here [46.18KB PDF].

It's last week's publication from the Basel Committee on Banking Supervision outlining some amendments to the initial proposals put forward at the end of last year to strengthen banks in the wake of the 2008 financial meltdown.

Now I would hazard that even those of you who work or have worked in the banking industry would be nonplussed by much of it.

As is the norm for the Basel Committee - the supreme global decision-making body for banks - the concepts are complex and the language is highly technical.

For most of us, it's an impenetrable document in a mysterious foreign language.

Perhaps that's inevitable.

But just pause for a second. What happened in 2008, the collapse and rescue of the worldwide banking system, touched all of us: it turned a gentle recession into the worst recession since the 1930s; and we'll be living with the consequences, in the form of lower growth and squeezed living standards, for years.

Now imagine that the equivalent disaster had occurred in the airline industry, that almost every aeroplane came within a few seconds of dropping out of the skies.

In the aftermath, and however complex the engineering of a plane may be and irrespective of the intricacies of traffic control, the effort to mend and reform air transport would be conducted in full public gaze, using ideas and phrases understandable to all.

As citizens, we wouldn't tolerate anything else - and nor would politicians and regulators believe for an instant that they could get away with stitching up some ostensible solution in private.

So what is it about banking regulation that makes it inappropriate for discussion in front of the children?

Are banks intrinsically harder to comprehend than modern, computer-controlled aeroplanes? That would be difficult to argue.

Are banks less important to us? Well, few people die instantly when a bank crashes. But when a financial system crashes, and the world becomes poorer, vast numbers of people suffer - and some would indeed die, if the resources available for medical care were to contract.

It is therefore odd that the future of banking is being decided as it has been done for more than 35 years, behind closed doors in the quaint Swiss town of Basel by a committee of unelected central bankers and regulators.

The consequences of carrying on like this will be profound.

For example, it's all very well for the government and the Financial Services Authority to demand that non-executive directors of banks and shareholders in banks must be far better informed about the risks being run by their respective banks - and must be prepared to veto dangerous behaviour by those banks - but how can they exercise that responsibility when it's unlikely that they will understand even a fraction of Basel's rules for measuring and controlling risk?

So the clever clogs executives who run banks will be able to carry on as they have been doing for the past 30 years of globalised financial capitalism, which is to see the Basel strictures as the rules of a game to be exploited for vast profit.

It is inevitable that in any rulebook as long and complex as Basel's that there'll be loopholes and sloppy drafting and great unintended gaps. Banks will deploy their capital where the Basel rules understate the true risks, because that's where the highest rewards are to be found - and of course it'll take the regulators, and shareholders and non-executive directors too long to work out that they've been had.

It's what happened on a massive and devastating scale after the Basel l and Basel ll rules were introduced: banks engaged in too much property lending, in excessive off-balance sheet funding, in far too much lending to each other, in far too much investment in AAA rated securities manufactured out of subprime loans, because these were areas of activity either wholly ignored by the Basel rules or where the risks were not captured by the rules.

Inevitably, there'll be similar consequences from Basel lll, the new code that will determine how much capital banks must hold as protection against losses, how much cash and liquid resources they must hold against the threat of runs, and what proportion of their loans and investments must be financed by debt and liabilities of longer maturity.

Here's the question: rather than a rulebook that'll be even longer than the so-called comprehensive version of Basel ll - which runs to 347 opaque pages - wouldn't it be far better to have some very simple easy-to-understand principles, that capture the spirit of the kind of risks that our society believes are appropriate for any institution that has been given the privilege of taking deposits.

Underneath these principles there would be more detailed rules, giving different risk weightings to different categories of loan, or deeming certain kinds of capital as more valuable and useful than other kinds.

But it would be breaches of the principles that would attract greatest punishment and opprobrium, so there'd be no defence for a bank or banker who pointed to the minutiae of the rules to justify loading up the balance sheet with dodgy investments.

Is there any chance of such principles being agreed? Probably not, because national governments are so fiercely protective of what makes their banks different from banks in other countries.

If anything, that's the big message underlying the gobbledegook in the Basel Committee document I made you read at the outset.

I'll translate three parts for you.

1) On the final page, there's a reduction from 100% to 65% in the "Required Stable Funding factor" for residential mortgages. That helps banks that rely heavily on wholesale funding - finance other than the deposits provided by you and me - to provide mortgages. It's a sop to Germany and the US, where mortgage providers are particularly dependent on such wholesale funding (and, as chance would have it, is also a great boon for the UK's Lloyds Banking Group).

2) On pages 3 and 4, it says that the implementation of a new leverage ratio - a ratio of gross loans and investments to capital - won't happen till 2018 and hasn't been formally agreed yet. That's a sop to France and its banks with their massive derivative exposures, which would otherwise need to raise vast amounts of expensive new capital.

3) Page 1 signals a victory for Canada, which wanted the capital provided by "minority" partners in banks' subsidiaries to be included in those banks' capital ratios. Canadian banks have a fair number of subsidiaries capitalised in this way.

Some would argue that all this national horse-trading is also leading to a very worrying retreat from plans to put much greater emphasis when measuring the strength of banks on the old-fashioned definition of capital, viz equity capital or shareholders' funds - under pressure from EU countries whose banks have far too little of such basic capital.

However there's a bigger point. Which is that we've probably lost the moment when it was possible to simplify banking regulation and sanitize the banking system.

Instead, regulators, central bankers and governments are patching up complexity. So, whether we like it or not, the rest of us will have to delegate even more responsibility in the coming years to the so-called experts at the FSA and in regulatory bodies around the world to prevent the system toppling over again.

แก้ไขล่าสุดโดย sunny เมื่อ Thu Aug 05, 2010 2:24 am, ทั้งหมด 1 ครั้ง

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Re: What is the purpose of European bank stress tests?

ตั้งหัวข้อ  sunny on Wed Aug 04, 2010 3:27 pm

European banks beat estimates as bad loans fall
By Steve Slater and Lionel Laurent

Some of Europe's top banks met or beat earnings expectations on Wednesday, as bad debts shrank and retail operations more than offset losses in investment banking.

The banks tempered their good results, though, with a heavy dose of caution on the fragility of the economic recovery.

French SocGen's (SOGN.PA) profit was nearly 50 percent higher than estimates, while London-listed, Asian-focused Standard Chartered (STAN.L) posted record profits to just beat forecasts. Germany's Postbank (DPBGn.DE) profit also came in line with estimates but bucked the trend by raising provisions for bad loans.

Britain's Lloyds (LLOY.L) posted a 5 percent rise in net income on a sharp drop in impairments. Bailed-out Allied Irish (ALBK.I) said its first-half loss more than doubled, but it also saw progress improving its funding and forecast an EU approval for its restructuring.

The banks reporting Wednesday followed the trend laid out earlier this week by European leaders HSBC (HSBA.L) and BNP Paribas (BNPP.PA), which topped forecasts on a drop in bad debts despite declines in investment banking.

The sector was generally looking more confident after emerging from the July 23 results of pan-European stress testing mostly unscathed, and this week's earnings reports appear to have given it another boost.

European banking shares .SX7P have risen nearly 9 percent since the stress test results were released, against a rise of about 2.5 percent for European shares more broadly .FTEU3 and 8 percent for U.S. banking shares .BKX.

But not all have delivered good news. Italy's UniCredit (CRDI.MI) -- the biggest lender in central and eastern Europe -- missed estimates on Tuesday on goodwill impairments, falling trading income and persistently high costs of risk.

Analysts said the UniCredit results demonstrated that Europe's top banks have some way to go before they are fully recovered from their recessionary hangover.

SocGen and Standard Chartered, among others, echoed those comments on Wednesday; SocGen in particular called the recovery "fragile" and said European growth prospects "remain moderate."

(Additional reporting by Edward Taylor in Frankfurt, Writing by Ben Berkowitz in Amsterdam, editing by Elaine Hardcastle)

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Re: What is the purpose of European bank stress tests?

ตั้งหัวข้อ  sunny on Thu Aug 05, 2010 2:24 am

'Good bank' bad, 'bad bank' good at Rock
By James Moore, Deputy Business Editor

Northern Rock's "good bank" posted a £140m loss for its first six months as an independent company while the "bad bank" it was spun off from reported a £350m pre-tax profit.

The loss at Northern Rock plc was largely down to separation costs, and the need to pay high interest rates to depositors while holding £7bn at the Bank of England at low interest rates. The bank also incurred heavy charges as a result of the state guarantee offered to depositors. It was removed during the half and the bank lost £2bn of its £19bn in deposits as a result.

Gary Hoffman, who runs both banks as chief executive, insisted that the "good bank" still remained on track for a return to the private sector but said there was "no timetable" for this. "We have come away and made lots of very good progress. We remain committed to repayment of the taxpayer and returning Northern Rock to the private sector when the time is right. The numbers show we have made considerable progress against these objectives," Mr Hoffman said.

He said the bank is now looking at expanding its product range beyond mortgages and savings to include personal loans and credit cards.

Mr Hoffman objects to calling Northern Rock Asset Management a "bad bank", saying that 90 per cent of the mortgages that remain with it are still "performing" loans. Its profit compares to a £742m loss in the first half of 2009. Despite the improvement in the operation's fortunes, largely because bad debts are declining across the banking industry, the company is only repaying the £22.5bn loan advanced by the Government at a snail's pace – £300m was paid back in the first half.

The number of properties in possession also fell to 1,846 compared with 2,061 at 31 December 2009 and the impairment charge against bad loans, at £277m, is lower than in both the pervious half and the first half of last year. It is hoped that a run off company may eventually buy the business.

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Re: What is the purpose of European bank stress tests?

ตั้งหัวข้อ  sunny on Thu Aug 12, 2010 11:04 am

First Obama, now Cameron embraces 'nudge theory'
Andy McSmith reports on the doctrine sweeping Downing Street

Many years ago, when David Cameron was still at school, boys of his age would fall about laughing at a Monty Python sketch involving two men in a pub, one of whom was desperate to draw out information about the other's sex life. His continually repeated phrase was: "Nudge, nudge, wink wink, say no more!"

Nudge – with or without a wink – has a special meaning in modern political theory, and was very much in vogue in Mr Cameron's circles two years ago, before the current economic crisis began. Then it disappeared, as if they had decided to say no more. Now, it appears, it is back. The man who elevated "nudge" into a political catchphrase, the Chicago-based academic, Richard Thaler, says that his idea is at last getting serious attention in Downing Street, as it is in Barack Obama's White House.

A "behavioural insight team" – known colloquially as the "nudge unit" – is reported to be growing in influence inside No 10. The team includes the academic David Halpern, a former adviser to Tony Blair. He reports to Steve Hilton, Mr Cameron's director of strategy, and the Cabinet Secretary, Sir Gus O'Donnell. Vince Cable, the Business Secretary, is said by Professor Thaler to be "very much on board".

Professor Thaler visited Britain in 2008 to promote his theory, met Cameron, and made such an impression that for a time he acted as unpaid adviser to the Tory leader. His day job is directing the Center for Decision Research at the University of Chicago where he "studies behavioural economics and finance as well as the psychology of decision-making which lies in the gap between economics and psychology". He also "investigates the implications of relaxing the standard economic assumption that everyone in the economy is rational and selfish, instead entertaining the possibility that some agents in the economy are sometimes human".

To some people this may sound a statement of the bleeding obvious. Young people would be behaving rationally if the money they spend on iPhones was put into a pension fund instead, but most are not going to do anything so far-sighted without very heavy prompting. According to Professor Thaler, we would all invest in the stock market if we were rational, but we do not. Smoking, overeating and taking no exercise are other examples of irrational behaviour.

Nudge theory is an attempt to resolve a classic Conservative dilemma: since they believe in the small state and low taxation, should the Conservatives just leave us to our bad habits, and accept the undesirable social consequences that will follow, or use the levers of state to try to improve our behaviour?

There is a powerful libertarian wing within the party whose general prejudice is to allow people to do as they please provided they do not break the law. There are also paternalists who believe that the fortunate in society have a duty to protect the less fortunate from the consequences of their own folly. Libertarianism and paternalism are assumed to be necessarily in conflict.

In 2008, Professor Thaler and Cass Sunstein wrote a book called Nudge: Improving Decisions about Health, Wealth, and Happiness in which they claimed that there is a middle way that enables the state to be both paternalist and libertarian. Instead of ordering people around or leaving them to behave in self-defeating ways, the state can nudge them into behaving sensibly.

The example they gave which has attracted most publicity – not because it is the most important, but because it is so wacky – is the success story of the public loo in Amsterdam airport where men were nudged into urinating in the pan, despite the many distractions which were apparently spoiling their aim. This small, but desirable, improvement in male behaviour was achieved by painting a picture of a house fly on the porcelain. The quantity of misdirected urine is said to have fallen by 80 per cent.

In the UK it has long been assumed that if people are given financial inducements to cut their fuel bills through better insulation, they will do it. Nudge theory allows that they are not necessarily that rational, but will be influenced by what their peers are doing. Therefore, the way to persuade people with excessive fuel bills to do something about it is to tell them what the average bill being paid along their street is. Very few consumers will willingly pay more than their near neighbours.

The authors called their philosophy "libertarian paternalism". Another phrase they introduced was "choice architecture", a concept implying that the state can be the architect that arranges personal choice in way that nudges consumers in the right direction.

Not everyone who had read their book was overwhelmed. The writer Peter Wilby thought it was "pretty marginal to what politics ought to be about". But it impressed David Cameron, who met Professor Thaler at around the time that the book was published. He and his adviser, Steve Hilton, were looking for a neat idea that would suggest the Conservatives had found the ideal median between state intervention and laissez-faire. In August 2008, the book was included in a list of suggested summer reading circulated to Tory MPs.

Then all went quiet. As the economic crisis hit the UK, there were important things to talk about, and the next time the Tories reached for a big idea, they produced the Big Society. But the Big Society left the Civil Service cold – despite the fervent conviction David Cameron put into his exhortations to the public to be more civic-minded – because it did not translate well into policies.

It does not answer the question whether it is government's business to deter people from adopting bad habits that damage their health or wealth, yet ministers have to make these choices. If they intervene, they can be accused of running a nanny state; to do nothing risks appearing irresponsible and uncaring. But if the theory works, they can avoid either of those extremes – by nudging.

Wonks at the White House

They are the wonk's wonks: two middle-aged scholars from Chicago whose gift for explaining even the most complex legal and economic conundrums, in terms that Joe Public can understand, has turned them into cult figures in both the dusty halls of academia, and beyond.

But for men who are frequently hailed as visionaries, and whose books – in particular the hugely influential Nudge – have achieved the rare distinction of filling libraries, holidaymakers' suitcases, and presidential bedside tables, Cass Sunstein and Richard Thaler boast surprisingly dodgy political antennae.

The first time they encountered a local politician called Barack Obama, they presumed that his career was headed nowhere. "I met him at a neighbour's apartment," Thaler once recalled. "At the time he was running third in the primary [for the Senate election]. So we thought: great guy; probably never hear about him again."

Fortunately, for their careers at least, they were wrong. Mr Obama's rise has propelled the academic career of Thaler, hitherto an largely anonymous 64-year-old economic theorist, into orbit.

Sunstein, a formidably brainy law professor, has done even better: he now earns a crust as the White House regulatory "tsar", bringing the ideas that informed Nudge to bear on White House decisions on everything from shaming companies so they pollute less to getting people to make use of their tax-free pension plans. With his wife Samantha Power, who sits on the National Security Council, he forms one of Washington's foremost power-couples.

Guy Adams

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Re: What is the purpose of European bank stress tests?

ตั้งหัวข้อ  ฅนไท on Thu Aug 12, 2010 11:29 am

The gathering storm: Britain's faltering economy
By Sean O'Grady

Mervyn King, Governor of the Bank of England,
says the upturn will be 'sluggish'

High inflation. Slow growth. Falling house prices. Rising unemployment. Banks that remain broken. Confidence shredded.

Almost precisely three years after a financial crisis with its genesis on Wall Street and in the City of London mutated into the worst slump since the 1930s, the British economy seems set to suffer the worst of all economic worlds, a lethal combination that means life will be far from normal for many years. Indeed, conditions will be made more difficult by the harshest public spending cuts since the Second World War, however necessary they may be judged to be.

The Governor of the Bank of England, Mervyn King, warned yesterday that bank lending, the public finances and the economy as a whole will take many years to return to pre-crisis levels. He confirmed that inflation would be higher next year than previously feared, and growth in the economy slower. The upturn will be "slow and sluggish", he added; things would be "choppy".

Business and consumer surveys clearly show that the emergency Budget led to an immediate loss of confidence among households and companies, which almost certainly led to lower sales on the high street and a further slump in investment.

One of the many injustices of the crisis is the way that a recession caused by London and Manhattan bankers unleashed its havoc upon blameless firms and families across industries in the North, the Midlands and Wales, destroying livelihoods. Now, still reeling from the closures, the sackings and the repossessions, these same regions, many of which have relied on government jobs to sustain them, are threatened with savage Budget cuts. In many parts of the country, and for many thousands of families, the recession is far from over: "Double dip" may not do it justice.

The Bank's warnings add to signs that the UK will soon suffer from the worst of all worlds on almost every main economic indicator – high unemployment coupled with inflation; depressed growth and house prices; and a widening divergence between the better-off regions and those, such as the Midlands, which have been hit hardest in the downturn. Public spending cuts threaten to throttle revivals in industrial centres such as Coventry and Newcastle, where government agencies and schemes also provide many jobs.

So while the whole nation will suffer a squeeze in its living standards over the next 12 months – thanks to minimal wage rises, tax hikes and soaring food and petrol prices – the most disadvantaged households in the most distressed regions are set to suffer the greatest pain. And, even though the latest figures on unemployment show a stabilising total just shy of 2.5 million, an additional 1.5 million are in temporary or part-time work because they cannot find a full-time job. The numbers of long-term unemployed are also up sharply; 796,000 Britons have been without work for more than a year, and 313,000 for over two years. Many economists believe that a headline figure of 3 million jobless next year is a growing possibility.

Inflation, says the Bank , will remain above the official target for the whole of 2011, with an outside chance that it will spike as high as 5 per cent. Recent sharp rises in the price of foodstuffs and other commodities, including a doubling in wheat in two months, and the rise in VAT threatens a sharp spike in the prices households pay for everyday items such as petrol and bread. Again, poorer families will be the most disadvantaged, especially if they rely on housing benefit or disability allowances, soon to be reformed.

But that relatively high inflation rate – which promises to be the worst among the advanced G7 economies – will be combined with growth of about 3 per cent over the next two years or so, rather than the 3.5 per cent previously estimated by the Bank. That is markedly more optimistic than official projections from the Office for Budget Responsibility for growth of 2.3 per cent in 2011, or the IMF, which sees the UK growing by a slow 2.1 per cent next year. According to the range of forecasts the Bank produces there is a chance that the economy will experience negative annual growth in the middle of next year.

Yesterday Mr King was keen to stress that the risk of a Greek-style sovereign debt crisis had been eased by the Budget, and with it the extremely damaging possibility of a sky-high rise in interest rates. But the internal dangers to the economy, even before the Chancellor takes £113bn out of the economy and 600,000 public-sector jobs with it, seem scarcely less real.


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