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The European Central Bank’s long-awaited asset quality review suggests the vast majority of Euro-area banks could withstand a shock to the region’s economy. Just 25 of 123 banks failed its stress test. That’s good news. But does it mean European banks are in position to start lending and fuel economic growth and investment? Probably not.
Consider the path the U.S. has traveled. Long after its 2009 stress tests were completed and long after U.S. banks received and paid back government capital, bank lending in the U.S. was painfully slow to recover. Overall bank lending has grown at a modest 1.9% annual rate during this recovery and commercial and industrial loan growth has grown at a 3.6% rate. Only recently, five years after U.S. stress tests, have total bank lending and business lending started to pick up in earnest. In September total bank loans were up 6.3% from a year ago, the best performance since 2008, and commercial industrial loans were up a robust 12.3% from a year ago.
There was plenty in the latest ECB stress test to leave observers wary about the broader health of European banks. Some big banks came close to failing, passing the test with ratios of capital-to-risky-assets not far above the 5.5% threshold in an adverse economic scenario. In Italy, where nine banks failed the tests, some of the country’s top lenders squeaked by, including UniCredit SpA, its largest bank, which came in with a capital ratio at 6.8% in an adverse scenario. In the U.K., two giant lenders that were bailed out by taxpayers during the crisis also passed with less than flattering results. Royal Bank of Scotland Group PLC and Lloyds Banking Group PLC showed capital below 7% in an adverse scenario.
Some also looked shaky using other measures. The ECB said 17 banks would have been below a broad 3% leverage ratio. Based on the 4% threshold used by the Fed for big U.S. banks, 36 European firms would have fallen short.
Read The Wall Street Journal’s complete coverage below.
MORNING MINUTES: KEY DEVELOPMENTS AROUND THE WORLD
ECB Says Most of Europe’s Banks are Healthy. Hoping to quell years of anxiety about Europe’s financial health, regulators said Sunday that all but 13 of the continent’s leading banks have enough capital to ride out another economic storm. The European Central Bank and the European Banking Authority announced the results of a nearly yearlong effort to assess the finances of 150 banks, identifying 13 that still need to come up with a total of €9.5 billion ($12 billion) in extra capital. Overall, 25 banks failed
the so-called stress tests, facing a cumulative shortfall of €24.6 billion.
More on the Stress Tests:
Full List of Banks that Failed
Interactive chart: A one-stop shop for European stress-test results.
ECB stress tests by country: How good were banks at valuing their own assets?
How the European Stress Tests Worked
Heard on the Street: Europe’s Good-Enough Bank Stress Tests
Fedspeak Cheatsheet: What Are Fed Policy Makers Saying?
Federal Reserve officials approach the Oct. 28-29 Federal Open Market Committee meeting amid unsettled financial markets, weak inflation around the globe, and slowing economies outside the U.S. Most officials favor holding off on interest rate increases until next year and ending the central bank’s bond-buying as planned this month. Less clear is whether they will change the language in their policy statement saying they will keep interest rates near zero for a “considerable time.” Here’s a sampling
of what Fed officials have said about the outlook for the economy and monetary policy since their meeting September 16-17.
Janet Yellen’s August: Lots of Meetings — And Vacation.
How does Fed Chairwoman Janet Yellen spend her August
? Well, half of it on vacation, like much of the rest of official Washington. Ms. Yellen’s office recently released her calendar for August.
Fed Board Meeting Again on ‘Medium-Term’ Issues.
The Fed’s Board of Governors will hold a closed meeting Tuesday, with “Discussion of Medium-Term Monetary Policy Issues” on the agenda, according to an official notice. A two-day Federal Open Market Committee meeting starts the same day, and similar board meetings accompanied the central bank’s September, July, June and April policy meetings. This suggests Fed officials are continuing to discuss the tools they’ll use to eventually raise interest rates, even after releasing a “Policy Normalization Principles and Plans” statement last month. –Dow Jones Newswires
BOJ Likely to Stick to Bullish Inflation View Despite Cutting Growth Forecast.
The Bank of Japan will stick to its bullish inflation
outlook when it meets this week, while likely taking a more bearish view on growth, people familiar with the central bank’s thinking say. Such an outcome would again underline the bank’s confidence that it can hit its 2% inflation target without taking any additional easing measures.
BOC Chief’s Testimony Moved to Wednesday.
Bank of Canada Gov. Poloz’s testimony to the Senate Banking Committee has been rescheduled to Wednesday and there won’t be a press conference by him until after his scheduled speech in Toronto on Nov. 3, say central-bank officials. Poloz’s quarterly presser after the BoC released its rate statement and monetary-policy report, as well as appearances in front of 2 parliamentary committees, were postponed after the fatal shooting of a soldier nearby shut down the capital Wednesday. –Dow Jones Newswires
Sweden’s Riksbank Seen Cutting Main Rate.
Sweden’s central bank is expected to cut interest rates to a new record low this week after inflation stubbornly refused to rise during the early autumn. Analysts polled by the Wall Street Journal said they think the Riksbank will lower its benchmark interest rate to 0.05% from a current 0.25%. The measure of underlying inflation most closely watched by the central bank came in at 0.3% in September, a full 0.4 percentage point below the Riksbank’s forecast, Nordea bank analysts noted.–Dow Jones Newswires
The U.S. housing market has struggled to find equilibrium after the bubble of the past decade. Here’s a look at where various gauges of supply and demand stand today. Explore the Journal’s interactive graphics
— 10 in all — that look at volume of new- and existing-home sales
, construction, value and prices, and supply.
-Bank of Israel releases a policy decision at 4 p.m. local time
-BOE’s Shafik speaks in London at 1700 GMT
-ECB’s Nowotny speaks in Vienna at 1800 GMT
-Sweden’s central bank releases a policy decision at 0730 GMT
-Hungary’s central bank releases a policy decision at 1300 GMT
-BOE’s Cunliffe speaks in Cambridge, England at 1630 GMT
-Fed begins a two-day policy meeting in Washington
-BOE’s Haldane speaks in Birmingham, England at 1630 GMT
-Fed releases a policy decision at 2 p.m. EDT
-Brazil’s central bank releases a policy decision
-Reserve Bank of New Zealand releases a policy decision at 0900 local time
-BOE’s Cunliffe speaks in Bradford on Avon, England at 0645 GMT
-Fed’s Yellen delivers welcoming remarks at a Fed conference on diversity in economics in Washington at 9 a.m. EDT
-ECB’s Linde and Noyer speak at an event in Spain at 1815 GMT
-BOJ meets and releases its semiannual report on the growth and inflation outlook
-Bank of Russia releases a policy decision at 0930 GMT
-San Francisco Fed’s Williams speaks in Pretoria, South Africa at 9 a.m. local time (0700 GMT)
-San Francisco Fed’s Williams speaks on a panel about inflation targeting in Pretoria, South Africa at 3 p.m. local time (1300 GMT)
-Bank of Mexico releases a policy decision
Millions of Americans inadvertently
made a classic investment mistake that contributed to today’s widening economic inequality: They bought high and sold low. Late in the stock market booms of the 1990s and 2000s, more U.S. families clamored into stocks as indexes surged. Then, once markets tumbled, many of them sold and took losses. Families that held on during the most recent stock collapses reaped the benefits as stocks nearly tripled between 2009 and today. New research from the Federal Reserve and the University of Michigan shows the role that panic
about the market played in widening wealth inequality.
Recent popular headlines seemed to suggest
spending less on your wedding may help your marriage. Well, maybe.
Two economists at Emory University — Hugo Mialon and Andrew Francis – looked into whether the cost of an engagement ring and wedding have anything to do with how long a marriage might last. That provoked a flurry of coverage that, well, sort of hit at what they said. But quickly lost in the debate was an age-old axiom: Just because two facts are related (cheap wedding, longer marriage) doesn’t mean one causes the other.
Stress Tests Mark Important Step Toward Eurozone Banking Union, Simon Nixon writes
in the Journal. “The success of this exercise hinges not on bank lending, but on whether it paves the way for the creation of a true eurozone banking union in which lenders are judged by their own creditworthiness rather than that of their governments. The creation of a single supervisor and a new common framework for winding down failed banks —based on the bailing-in of creditors at its core and access to a pan-European industry-financed resolution fund—will go some ways to breaking the toxic link between sovereign governments and banks.”
What Europe’s Stress Tests Will and Won’t Do,
Mohamed A. El-Erian writes
for Bloomberg View, “Similar to efforts in the U.S. five years ago, the rigorous stress testing of banks in Europe is key to building a floor under the region’s economy and thus providing the basis for a more durable recovery. That is the good news in yesterday’s release of data by the European Central Bank. But for the assessment to be fully effective, Europe needs to do more, including finish work on the four legs of successful economic integration.”
Bond investors love “Ger-pan,” writes Alen Mattich
in the Journal. “Germany is widely seen as the eurozone’s big winner, the flagship of growth while other economies sank into long term stagnation. Which makes it particularly worrying that the bond market thinks Germany looks a lot like Japan. The bond market is as good a summary of expectations about the future as there is. And it seems to be saying that Germany’s prospects are little different from Japan’s. In other words, that Germany is likely to spend years flirting with deflation and low growth. Out to five year maturities, yields on German government bills and bonds are below their Japanese equivalents. And for longer maturities, they’re not much higher.”
- Sales of newly built single-family homes in the U.S. rose 0.2% in September
from the prior month to a seasonally adjusted annual rate of 467,000, the Commerce Department said Friday.
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