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Posts Tagged ‘european bank stress tests’

Lessons Learned Growing up in Boston, MA

Posted by Larry Doyle on December 1st, 2010 10:21 AM |

Boston SkylineI loved growing up in Boston. My beloved knows how often I think back to the lessons learned and ‘education’ received in those formative years of the 1960s and early ’70s.

While growing up as a youth in Boston, my friends and I experienced plenty of situations that shaped our characters and our outlook. I know for a fact that my youthful experiences also had a profound impact on shaping my instincts.

What did I learn growing up in Boston? What did I learn riding those city buses and trolley cars? What were the lessons learned at Hynes, Fallon, and Billings Fields? What will I never forget when my friends and I ‘hustled’ our way into sports venues (gaining entry to the Boston “Gaahden” via the fire exits, sneaking into Boston College football games amidst the college band)? (more…)

Irish Bailout Is a Backdoor Bailout of European Banking System

Posted by Larry Doyle on November 18th, 2010 6:20 AM |

What is going on in Ireland? Those forty shades of green look so inviting. How could it be that the Emerald Isle is the center of the current financial turmoil? Well it is…and it isn’t.

How is it that a variety of Irish officials can claim that they neither need nor want a bailout from the EU but a bailout is assuredly on the way? Are we witnessing a sovereign nation losing the ability to control its own affairs? There is no doubt the Irish are a proud people but are they also being overly stubborn at this juncture (believe me, I know proud and stubborn…!!)? Are the Irish failing to accept the inevitable? Hadn’t the Irish attempted a Swedish style approach in terms of aggressively recognizing losses within their financial sector?

While the answer to all of these questions is a varying degree of the affirmative (especially the proud and stubborn..!!), to truly understand what is happening in Ireland, we actually need to shift our focus to the European mainland. Really? Why’s that? Let’s navigate the tangled web and interconnectedness of the global banking system circa 2010. (more…)

European Bank Stress Tests Confirmed as Shams

Posted by Larry Doyle on September 7th, 2010 6:53 AM |

I have long since given up the belief that our government officials and financial regulators will demand real transparency and full disclosure in the pursuit of unquestioned integrity across our economic landscape. While some may deem me overly cynical for that statement, too much proof and too many situations leave me no other choice. Where do we witness more financial artifice this morning? Let’s look across the pond.

In late July, I questioned the integrity of the European Bank Stress Tests and wrote, Will European Bank Stress Tests Be “Garbage In, Garbage Out?”:

All eyes will turn toward Europe this afternoon for the much anticipated release of the Euro-style Bank Stress Tests. Those who truly embrace real ’sense on cents’ know that the process and the data are far more important than the actual results. Why is that? If these tests are charades or nothing more than ‘garbage in,’ then the results will most assuredly be ‘garbage out.’

Well, while gullible investors and government officials worldwide may not care to know the real state of the European banks, those of us who truly treasure ‘sense on cents’ are not surprised to now see European financial sewage streaming across the newswire. (more…)

Keine Transparenz Mit Diesen Untersuchungen

Posted by Larry Doyle on July 26th, 2010 3:19 PM |

“Was ist das, LD?” What is this, you ask?

Did you inadvertently hit your keyboard and Sense on Cents is now being delivered in German?  No, don’t worry about that. Although I have always had a strong interest in the German language and history, my language skills have faded over the years. That said, I think readers should be able to figure out the key German word in my title. (I hope my grammar is correct!!)

In light of the European Bank Stress Tests released on Friday, I am compelled to highlight the fact that for a number of German banks there was “No Transparency with These Tests.” How so? (more…)

Will European Bank Stress Tests Be “Garbage In, Garbage Out?”

Posted by Larry Doyle on July 23rd, 2010 6:52 AM |

All eyes will turn toward Europe this afternoon for the much anticipated release of the Euro-style Bank Stress Tests. Those who truly embrace real ‘sense on cents’ know that the process and the data are far more important than the actual results. Why is that? If these tests are charades or nothing more than ‘garbage in,’ then the results will most assuredly be ‘garbage out.’

On this note, let’s review a few comments from a Bloomberg preview of these tests. Bloomberg reports, Success for Stress Tests Hinges on Data, Not Failures:

1. The success of the European Union’s bank stress tests hinges on how much detail regulators provide about the basis for their conclusions, not on the number of lenders that fail, investors said. (more…)

What’s ‘UP’ with the Euro?

Posted by Larry Doyle on July 20th, 2010 9:41 AM |

The Euro has had a significant bounce over the last 6 weeks. After bottoming out slightly below 1.20/U.S. dollar in early June, the Euro has bounced back close to 1.30 versus the greenback. Let’s navigate the circuitous path of this most important currency and assess where it may be headed from here. I am most pleased to highlight commentary on this critically sensitive topic, written specifically for Sense on Cents by Forextraders.com:

The Current State of the Euro:  Can It Head Higher Versus The Dollar?

The months of June and July have seen a rapid and extreme appreciation of the Euro against the U.S. Dollar.   In order to understand our current state of the Euro and where we may be headed, it is imperative that one have a basic understanding of the Sovereign Debt Crisis in Europe. (more…)

Kenneth Rogoff: “A Lot of Insolvent European Banks”

Posted by Larry Doyle on July 7th, 2010 5:30 AM |

Kenneth Rogoff

Should the European Union run bank stress tests or not? While that question has been hotly debated over the last few months, we received an answer today from one of the most highly respected economists in the world. Who might that be? Harvard’s Kenneth Rogoff, a Thought Leader and Sense on Cents Economic All-Star.

I have often referenced Rogoff’s work over the last eighteen months (go here) and hold him in the highest possible regard. So, about those European banks and the hotly debated stress tests? What does Rogoff think? Are you sitting down?

In a Bloomberg commentary, European Banks’ Hidden Losses Threaten EU Stress Test, we learn: (more…)

Sense on Cents Enters The Debate Room

Posted by Larry Doyle on June 17th, 2010 2:24 PM |

Should European banks conduct bank stress tests. Should individual bank’s test results be publicized? Should the results in totality be publicized? Can the tests themselves be fairly administered and generate robust results?

Bloomberg Businessweek recently asked for my thoughts on this topic for purposes of generating a debate. The Debate Room was just published:

PRO: A SURVIVAL MECHANISM
by Bill Bartmann, Bartmann Enterprises

It makes good sense for Europe to conduct a series of stress tests on its banks so that countries and companies have some better sense of their risk exposure.

Financial institutions use stress tests to determine the degree to which a bank or financial institution can withstand a shock of a given magnitude. For example, instead of doing a projection on a best-estimate basis, the bank does a scenario analysis looking at negative variables: What happens if interest rates rise to X percent? What happens if loan defaults rise to X percent? What happens if gasoline prices rise to $X?

But stress testing has relevance for other entities as well. One can apply stress tests to an entire nation. For example, what is the impact on the U.K. if the euro falls 25 percent? Or what happens to Germany if Greece defaults on its national debt? Stress testing also works with nonbank companies—say, a manufacturer or a retailer: What happens to Nestlé (NESN:VX) if the dollar rises and exports to the U.S. become more expensive?

The G-20 Financial Stability Board is urging European nations to publish the stress-testing results of its banks, and cites the openness of stress testing in the U.S. as a factor beneficial to restoring market confidence. Conservative or progressive, we can all agree that more stability in markets is a very good thing.

CON: FAULTY MECHANICS
by Larry Doyle, Sense on Cents

Given the success of the bank stress tests run here in the U.S., should the same tests be administered in Europe as a precursor to economic recovery? Only if you believe in shell games, manipulating vigorous accounting principles, and the concept of “too big to fail.” Aside from that, I believe our bank stress tests were largely a charade, and the same would likely transpire in Europe.

For any financial test to be deemed credible, the test itself needs to be truly robust. Those in America may claim our bank stress tests were truly successful, but I firmly believe the tests should be graded incomplete at best.

Why do I make this claim? Let’s enter the world of HELOCs (home equity lines of credit). The base-case assumption used in our bank stress tests was for cumulative losses on this product of 6 percent to 8 percent with a worst-case scenario of 8 percent to 11 percent. Those assumptions were ridiculously low. Our banking system continues to be chock-full of likely hundreds of billions in losses on this product. Those losses were largely overlooked in our tests.

Would European bank stress tests fully expose the nature and value of a variety of loans held on their books or merely disguise them in the same manner as the U.S. tests? If European governments want to play that game, then they should go right ahead and run the same tests and play the same charade, but do not expect real transparency and integrity along with them.

What do you think? How do you score it? Please leave your thoughts and comments at the Bloomberg Businessweek site, as well. Thanks!!

LD

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European Bank Stress Tests? Nein, Danke!!

Posted by Larry Doyle on June 1st, 2010 8:58 AM |

How do you think the wizards in Washington are feeling about the European bailout structured two weeks ago at their behest? In those two weeks, the Euro has plummeted another 5%, equities continue to suffer, and credit spreads continue to widen.

Our Washington wizards are looking back into their bag of tricks and now recommending another of their ‘shell game’ proposals to their European counterparts. Which proposal might this be? How do you spell charade? Try, bank stress tests.

Treasury Secretary Geithner is pressuring European central bankers to perform and release bank stress tests as a precursor to restoring financial health and stability into the European system. The Wall Street Journal highlights Geithner’s recommendation this morning in writing, U.S. to Push Europe on Stress Tests:

The U.S. intends to urge Europe to disclose publicly the results of bank stress tests as a way to calm jitters over the health of the Continent’s financial system, U.S. officials said. (more…)






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