The most awaited report for the EU stress test came on late Friday evening, and it was prodigious mere 7 banks didn’t able to pass the assessment done for 91 lenders. As if now the original report is not available in the public domain.
Few of the facts I was able to gather from the financial media are:
The committee is termed as CEBS Committee of European Banking Supervisors were 27 EU member countries, assessed the banks by looking in to scenarios under the assumption that recession culminates in a once in 20 year crisis.
Banks unable to maintain Tier 1 capital ratio of 6% by the end of 2011 most adverse scenario deemed to have failed.
The 7 banks failed under the adverse stress which assumes a 3 percentage point deviation of GDP for the EU compared to the European Commission’s forecasts over the two-year time horizon. The method of translating this scenario to loss rates is also conservative.
One of the biggest concerns for the investors is that the stress test excluded the possibility of sovereign debt default. Sovereign debt held in portfolios was distinguished from sovereign debt held to maturity. Some of the EU members already bailed out jointly by IMF and EU.
Analysts around the world already having their say that the stress test were not stringent enough and that the release of the results had fail to alleviate market concerns about the banking system’s vulnerability to the sovereign default risk.

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