The asset quality review and bank stress tests are an effort at transparency in order to restore confidence.
They should have been undertaken somewhere in the neighbourhood of 5 years ago but the good news is that the ECB finally set a date – October 26 — for the reviews of the 130 largest banks. Draghi is banking that this will finally restore faith in the finance and lending sectors.
They will be released before the European open.
The ECB says lenders will have six months to cover any capital shortfalls reported in its asset quality review or the baseline stress test scenario, and nine months to cover any capital shortfalls from the adverse stress test scenario. Banks will have two weeks to submit capital raising plans if needed.
There is a lot riding on these results and how the market interprets them.
