The stock market was begging for the correction that happened yesterday. The fallback hit the euro zone financial sector hardest. Spanish banking stocks fell 3.6% on average, although they were not hit the hardest. Declines result from investors wanting to sell off stocks and fears about what methods the ECB will apply to the next stress test that banks have to face.
ECB President Mario Draghi is not ready to monitor the banking sector directly without ensuring first whether the banks are healthy. "It is an important step for Europe and for the euro, and we want the financial sector to be healthy again," Draghi said. He also said that he would not hesitate to sanction banks that do not pass the stress tests designed to assess the value of their assets.
The stress tests will affect 128 companies -- 16 from Spain -- who own more than 30 billion euros in assets. There are some new aspects of the tests. The ECB will increase its high-quality capital requirement from 5% to 8% and also analyze the banks' sovereign debt portfolios.
Draghi's new parameters have sowed doubt within the financial sector, because nobody knows for sure what banks will be better or worse off after these new stress tests.
For example, Spanish banks are worried about how the ECB will penalize their portfolios of sovereign debt. All of them have way too much of it. The most important thing is that the ECB, as the only supervisor that these banks will have, applies the same criteria to all banks that it examines so that there are no cases of discrimination or unfairness.
