Will it be a bloody Sunday for some eurozone banks? That is the day that the results of the European Central Bank’s so-called ‘stress tests’ are released.
The bank have reviewed the region’s 130 biggest lenders to make sure they would have enough money to cope with another economic crash.
Jan Lambregts, Head of Financial Markets Research at Rabobank, believes the tests have been tougher than in previous examinations: “Our expectation is that the stress tests are really quite stressful, and that there will be a considerable amount of banks coming out that need to redress certain issues there. That should boost confidence.”
Media reports say between 11 and 25 banks have failed by not having enough cash reserves .
Lawyer and banking expert David Ereira at Linklaters, who has been following the process, said: “The markets which are going to be most affected, certainly in the short term, are likely to be Italy, Spain, possibly Portugal and Austria. Interestingly enough, there may also be some German banks.”
Six thousand experts have looked at the banks’ balance sheets, checking their reserves and whether loans they’ve made are likely to be paid back.
The tests are a response to persistent doubts about the health of the eurozone’s banking sector, intended to restore confidence before the ECB becomes the region’s banking supervisor on November 4.