The Greek economy is in difficulty, and its financial system is under pressure since the country became the epicenter of the biggest crisis in the history of the euro area. However now it seems that Greek banks will pass through the stress test of the banking system in Europe. A similar paradox is seen in Europe. While regulators prepare to publish the results of stress tests of the largest European banks on Friday, political and financial leaders sound surprisingly optimistic in their expectations of the outcome, writes Wall Street Journal. Sentiment among investors are fundamentally different, as many believe that some European banks experiencing serious difficulties. Given that the U.S. government made 10 of 19 largest banks in the country to attract more capital after the stress testing them in 2009, very good results in Europe may undermine the feeling of confidence that European politicians try to regain. According to economists of the Royal Bank of Scotland if the Greek banks withstand the test without a problem, the markets may appear skeptical about whether the tests were sufficiently stringent and that give an objective assessment of the state of the financial system of the Old Continent. One of the banks that tests will show that there are difficulties, the German mortgage lender Hypo Real Estate. It told the Wall Street Journal source familiar with the matter. We Hypo Real Estate is 100% government ownership, is expected to pass their toxic financial assets of 200 billion of bad bank “, supported by the Fund German financial market stabilization (SoFFin). Hypo may request a further 2 billion capital Sofiin, having already received 8 billion.
Recent optimism about the ability of stress testing to allay fears about the European banking system increase the share prices of European banks and increase the rate of the euro against the dollar and pounds. The European economy still has many challenges, as demonstrated by its decision of Moody’s credit rating to reduce Ireland and the failure of negotiations between Hungary and IMF. In Greece, the government representatives, however, remain confident about the health of banks, despite an increasing share of overdue loans and declining liquidity. Analysts said Greek banks are among those most likely to need capital after the stress tests. But his optimism with Greek government officials undermine the credibility of the entire test process. These concerns are exacerbated by the lack of transparency on the stress tests. For them, just know that will be undertaken by regulatory authorities of 20 countries whose banks will be tested and will be coordinated by the London-based Committee of European Banking Supervisors, who fight for consensus on the methodology of the tests. It is not clear how the parameters of the test will be announced along with its results Friday. In testing will involve the largest 91 banks in Europe who hold at least 50% of total banking assets in each of the participating 20 countries. This includes 16 members of the eurozone, Britain, Denmark, Poland and Sweden. Investors, bankers and some European government officials believe that to earn trust and confidence, stress test must show that there are endangered banks. Furthermore, Greek banks, analysts expect some small and medium-sized Spanish and German banks find themselves with insufficient capital.