Stress Test Propaganda

The recent assessment of European banks’ stability was a public relations exercise, says Al Jazeera. Banks look unprepared for the long term, but few are being moved to act: “The problem with the test is that while it is meant to gauge what would happen to the banks if financial Armageddon took place, the level of testing more closely resembled the banks being tickled by a feather. The tests did not include a sovereign debt default scenario—i.e. it did not examine what would happen to them if Greece were to default on its payments. In the long term, investors will wake up to the fact that Greece defaulting on its sovereign debt is very likely, and that a good number of Europe’s banks would still be undercapitalised to deal with such a shock.”