Northern Country

How globalization changes capitalism, the economy and politics

A muddle through version of a stress test

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America is leading the way, and Europe follows. But is it really? A few days ago the Federal Reserve published results of its Supervisory capital Assessment Program (SCAP). Although received with plenty of criticism it revealed a rather robust capital position of America’s largest financial institutions. Only a few of them are in need of fresh capital, if the economy were to worsen significantly. According to the results it is likely that concerned banks do not need any more tax payer funds to meet their requirements.

EU-Finance Commissioner Joaquín Almunia wants a stress test for European banks and financial institutions. Unfortunately this European version will be less transparent and less scrutinizing. A capital adequacy test will be applied only to the financial system as a whole and does not concern individual financial institutions. The question will be answered if financial institutions in general will be able to withstand a worsening of the financial crisis. The council for Economic and Financial Affairs (ECOFIN) contrary to Mr. Almunia wants the results of the stress test not being published. The question bears to mind which member states and their finance ministers do not want the health of their financial institutions being revealed. One cannot help but speculate that European financial institutions are in direr straits than their US counterparts. If there is only one result coming out of this half secretive test it will be this.

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Written by Alfred

12. May 2009 at 5:01 pm

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