The European Central Bank (ECB) and the European Banking Authority (EBA) will publish the results of their latest stress tests tomorrow. The tests arrive at a critical point in Europe's path toward banking unity as most of the region's banks pass.
Thanks to these stress tests, the ECB will prove that it has a clear picture of the financial system. The system needed these tests, which were at once rigorous and required. 130 firms were examined in order to make sure they are strong enough to withstand an extreme economic situation. Markets have been speculating lately, with little reason to, about a third recession in Europe. But even the most bearish views predicted negative 1.5% growth in 2015, which the stress tests suggest will happen.
Beyond the ECB, the companies that proved they could withstand tough times are the real winners, because they have secured their credibility. Indicators suggest that in Spain's case, 95% of its financial sector companies passed the test, and the biggest ones did so with aplomb.
Even doubts that small banks would struggle have dissipated. Perhaps the stress tests show that sweeping reforms from 2012 and 2013 have worked and credit will rebound. The banks are ready if it does, however slowly demand for debt returns.
