Academics Run Real Stress Test, Find Banks Need $1 Trillion TARP!
Aug. 2, 2016 (EIRNS)—In an ironic counterpart to the panic in bank stocks all over Europe today, following the unfortunately faked "stress tests" by the European Banking Agency (EBA) last week, three academic economists performed a kind of "real stress test on an emergency basis." Their findings were published July 30, and reported by the Financial Times and Agence France Presse: The big European banks would need close to 900 billion euros—about $1 trillion—in new capitalization to withstand the crisis.
The investigators were Sascha Steffen of Germany’s Center for European Economic Research, Prof. Viral Acharya of New York University’s Stern School of Business, and Diane Pierret of the University of Lausanne in Switzerland. They reported, "The market has a very different view on how risky bank portfolios are" than the Basel supervisors. The 34 listed banks have lost a full third of their book value since the last EBA stress tests in 2014, so investors had no confidence in them. The Aug. 1-2 crash in bank stocks showed these EBA stress tests had been faked as well.
The three academics found that the big European banks (including those headquartered in London) would need 882 billion euros in new capital to survive the losses from their risky assets a serious crisis like this one.
They acknowledged that such an immense "recapitalization" could come only from a Europe-wide government bailout, essentially a European TARP 30% larger than the 2008 original. And they were assuming that bank bondholders got bailed in as well!
France comes out of the economists’ analysis worst, with the three French banks in the 2016 stress tests needing €250 billion, followed by the United Kingdom’s four listed banks, whose requirement would be €185 billion; Spain’s six listed banks, 116.6 billion; Germany’s two listed banks, €114.4 billion. In a surprise to some, Italy’s five listed banks were the least needy of a capital bailout, €96.6 billion.