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Euro stocks edge higher on stress test results

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Euro stocks edge higher on stress test results

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European markets opened higher on Monday after most of the continent’s banks passed tests set by regulators to check their financial health.

London, Paris and Frankfurt opened were up between 0.6 and 1 percent.

The so-called stress tests were designed to see if banks had enough capital to withstand further economic turmoil without going bust.

Worst case scenarios were looked at including a double-dip recession in Europe and increased exposure to sovereign debt.

Regulators at the Committee for European Banking Supervision looked at lenders’ balance sheets to see whether they had sufficient Tier 1 capital.

This is a key measure of a bank’s strength and consists of equity, preferred shares and earnings not paid out to shareholders as dividends.

Each lender had to show they had a minimum amount of 6 percent to pass the stress test.

Just seven of 91 banks failed including Germany’s Hypo Real Estate and Greece’s ATE Bank as well as five small regional lenders in Spain.

That has led some observers to question whether the tests were too lenient in the first place.

According to analysts at Morgan Stanley, 24 of the banks would have failed had the threshold been set at seven percent.