First the Volcker Rule was defanged when last night the requirement to offload TruPS CDOs was eliminated, and now here comes Europe where the ECB just lowered the capital requirement for its “stringent” bank stress test (the one where Bankia and Dexia won’t pass with flying colors we assume) by 25%. From the wires:
- ECB SAID TO FAVOR 6% CAPITAL REQUIREMENT IN BANK STRESS TEST
- ECB SAYS DECISION ON CAPITAL REQUIREMENT NOT YET FORMALLY MADE
- MAJORITY OF POLICYMAKERS AND TECHNICALS OFFICIALS HAVE REACHED CONSENSUS ON THE BENCHMARK
The final number may in fact be even lower:
- SMALL NUMBER OF COUNTRIES WANT AN EASIER BENCHMARK AND MAY PRESS FOR COMPROMISE LOWER THAN 6%
Why is this notable? Recall from three short months ago:
The European Central Bank said it will use stricter rules when stress testing banks’ balance sheets next year than it will to study their assets, as it seeks to prove its credentials as the region’s financial supervisor.
While the ECB confirmed that it will require lenders to have a capital ratio of 8 percent, what qualifies as capital will change over the course of the three-part assessment, the central bank said in an e-mailed statement. The capital definition applicable on Jan. 1, 2014 will be used for the asset-quality review and the definition in force “at the end of the horizon” of the stress test will be used in that evaluation, it said.
Ignazio Angeloni, who is head of the ECB’s financial stability directorate, said today in Frankfurt that officials haven’t yet decided on a timeframe or on details for the stress test. The European Union is gradually phasing in global capital standards known as Basel III, a process which is due to be completed by 2019.
“We’ve got a feasible but safe capital cushion of 8 percent,” Angeloni told reporters. “We want the exercise to encompass all the main sources of risk.”
Apparently you don’t, but who cares as long as the myth of strong European bank balance sheets is perpetuated. And should the capital requirement be lowered even more, expect politicians and central bankers to bang the drums even louder on just how stable the European financial system is.
via Zero Hedge http://ift.tt/1dQLoXD Tyler Durden