Unpacking Europe’s banking stress-tests

Smoke and mirrors apart: It is France and Germany that have by far the largest capital shortfalls among Eurozone banks. Further, the aggregate capital shortfall for European banking is much larger than the ECB would have us believe. The aggregate capital shortfall for just the 11 largest Eurozone banks is roughly €90 bn, or almost 10-fold larger than the shortfall identified by the ECB for all 130 banks included in their study (vis-à-vis a 3 % leverage ratio). If a more prudent leverage ratio is adopted, the capital shortfall is €540 bn, or 50-fold larger than the ECB figure released a few weeks ago.

Continue reading about insolvency and capital shortfalls in Europe’s banks at Jakob Vestergaard’s blog.