European Stress Test Results

As expected, European bank stress test results weren't terribly stressing to the market. Released later than expected last Friday, the stress tests show that only seven of the 91 banks under consideration failed. The rest are deemed to have enough capital to weather a crisis in Europe.

GFT's Kathy Lien reports in FX360 on how the bank stress tests were applied:

The banks were tested for 2 scenarios – one was an adverse scenario where growth is substantially weaker than the European Commission’s forecasts, the unemployment and interest rate increases, asset values plunge and currencies go into wild swings. The second was an adverse scenario that included sovereign risk. No defaults were assumed but larger than expected haircuts were applied.

The markets did respond favourably on Friday, with European markets ending higher on the news. The U.S. stock market also ended higher on the stress test news. However, there are still questions about how accurate the stress tests are, and whether they were too lenient.

Today, spread betting and contracts for differences should consider that European markets are slightly lower, losing some ground. The FTSE 100 is also in the red.