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ECB Publishes Results of Bank Stress Tests, Excludes Derivatives!

Oct. 26, 2014 (EIRNS)—As expected, the so-called stress tests and asset quality review (AQR) by the European Central Bank (ECB), punished commercial banking and promoted investment banking. Of the 130 Eurozone banks inspected, all but 25 had sufficient capital at the end of 2013, and 12 of those had eliminated their shortfall by the report’s release, leaving a mere 13 banks with insufficient capital to handle a new financial crisis, according to the ECB.

The capital ratio has been calculated on risk-weighted assets (RWA). These are loans, whereas financial trading is not considered at risk. As a consequence, Deutsche Bank has twice the balance sheet of banks such as Unicredit or Banca Intesa, but less RWA. On its EU1.5 trillion balance sheet, only 20% (EU353 billions) is considered RWA. EU1.2 trillions in financial trading (bonds, derivatives, etc.) are excluded. Thus, Deutsche Bank can meet capital requirements with only EU47 billions capital.

Commerzbank has a EU561 billions balance sheet, but an RWA of barely over EU200 billions, and thus can get through with a mere EU20 billions of capital.

The total exclusion of really high-risk investments, especially of derivatives, has promoted such gambling houses, but it has led to the inclusion of nine Italian banks on the list of 25 banks in trouble that was drafted by the ECB. Of those, seven have already recapitalized and Monte dei Paschi, Cassa di Risparmio di Genova (Carige) must now recapitalize.

According to the ridiculous ECB test/aqr, the European banking system needs just EU9.5 billions to be "safe" from systemic shocks. In reality, that figure would not even cover 1% losses on Deutsche Bank’s trading portfolio!