Photo Courtesy of The Bob Backlund Appreciation Society.Jim Rogers, everyone's favorite bow-tied American ex-pat, lambasted the European Union bank stress tests that were performed last week. In an e-mail Rogers labeled the European tests a "PR exercise just as was America's." Rogers went on to say they were "a waste of time - and journalistic ink."
Just 7 of the 91 banks tested in Europe failed the stress test. Fellow curmudgeon Nouriel "Captain Happy" Roubini also attacked the quality of the EU tests stating that he felt they were not nearly "stressful" enough. Here's Cap Happy on Squawk Box this morning...
It seems to me that both Roubini and Rogers are right on this one. If, hypothetically, the Europeans ran a hardcore stress test on their major banks and the majority were proven to be insolvent then that would spark a crisis that could well destroy the European economy. Therefore, it is in everyone's interest that the tests reveal a robust and well capitalized banking sector. In that scenario, the stress criteria must be meetable by the majority of banks. The EU knew this going in and set standards they felt their banks could attain. So yes, this was a glorified (but unfortunately necessary) PR exercise.
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