Although five Spanish financial institutions have failed the stress test- Banco Pastor, CAM, Unnim, Caixa Catalunya, Box3 - they will not have to raise more capital because the measures already taken will be enough to cover future looses... So, why they failed? Should not just failed the banks that need more money? What does this mean?. The answer is easy, the EBA, the new European banking authority, wants to increase its lost credibility, and now has decided to use Spanish banks as a scapegoat.
With the clear objective of not allowing certain Spanish banks to pass this test, the Supervisor established that generic or counter-cyclical provisions do not count as part of the analyzed capital of these banks. However, they absorb losses directly and represent a higher quality guarantee. In fact, if we take in consideration these exclusive requirements of the Spanish banking system, only one financial entity, Pastor, is below acceptable levels.
So, with which entities has EBA decided to play along? Indeed the French Banks and especially the German ones. The regulator has decided to analyze only the trading portfolios of these banks, which contains a fairly low percentage of sovereign debt. Instead, both French and German banks have much more sovereign debt that is not provisional in their books. However, the EBA has not dared to stick its finger right where it hurt most to powerful countries. Also, it has completely ignored a default in Greece, Portugal or Ireland, which most of the market players already assume.
These tests aren?t homogeneous, so they lack credibility. In many ways, Spain has been rigorous than the rest. Not just because we made a stronger weighting on risk. To begin, Spain aired the situation even of the smaller financial institutions, while other countries have withdrawn much of its smaller banks from these controls. Today, unjustly, the headlines highlight Spanish financial system has accumulated the largest number of failings. That can come back to hunt Spain´s image when it is obvious what the banking network would incur more losses: Germany.
However, the EBA thought is best not to rely on our country. The governor of the Bank of Spain is to blame since he did not have the courage to discriminate between good and evil entities. Ordoñez said yesterday that financial reform has taken much less time than any other previous measures approved in Spain, but we all know the latest one is coming too late compared with other countries. The supervisor still does not recognize the full extension of problems coming from mortgages and premium risks. Doing so could clean up the system at cheaper cost and eliminate many of the concerns weighing on institutions and the Spanish economy. That way we can score a goal by our own.
