Bank Stress Test.

Bank Stress Test.
Swiss tourist train in deadly derailing in Alps. One of Switzerland's best-known tourist trains, the Glacier Express, derailed on Friday in the Alps at the peak of the holiday season, killing one and leaving 42 injured, a railway official said. The Swiss news agency ATS reported that most of the injured were Japanese tourists. Six of them were in a serious condition. The Glacier Express is a major Swiss attraction, as it travels from St. Moritz to Zermatt, through some spectacular Alpine views. Swiss media said the accident took place between the skiing resort of Lax and the village of Fiesch, near the Swiss-Italian border and the mouth of the Aletsch glacier, Europe's largest icemass. Photographs posted on Swiss media websites showed at least three carriages toppled over.

Bank Stress Test. Executive summary: The Committee of European Banking Supervisors (CEBS) was mandated by the ECOFIN of the European Council to conduct in cooperation with the European Central Bank (ECB), the European Commission and the EU national supervisory authorities a second EU-wide stress test exercise. Sample of banks: The 2010 stress test exercise has been conducted on a sample of 91 European banks1. In total national supervisory authorities from 20 EU Member States participated in the exercise. In each of the 27 Member States, the sample has been built by including banks, in descending order of size, so as to cover at least 50% of the respective national banking sector, as expressed in terms of total assets. Scenarios used in the exercise: For the purpose of stress testing the credit risk and simulating the profit and losses, two sets of macro-economic scenarios (benchmark and adverse) have been developed, in close cooperation with the ECB and the EU Commission. The benchmark scenario was based on the EU Commission Autumn 2009 forecast and the European Commission Interim Forecast in February 2010, with several adaptations to reflect recent macro-economic developments in a number of countries. The adverse macro-economic scenario was based on ECB estimates. Within the adverse scenario, the exercise also envisages a “sovereign risk shock”, reflecting adverse conditions in financial markets. The benchmark macro-economic scenario assumes a mild recovery from the severe downturn of 2008-2009, whereas the adverse scenario assumes a “double-dip” recession. For the euro area, the GDP growth under the benchmark scenario is assumed at a level of +0.7 (2010) and +1.5% (2011), whereas under the adverse scenario the euro area would see a decrease of GDP by -0.2% in 2010 and -0.6% in 2011. For the whole European Union (EU27) the benchmark scenario assumes a +1.0% growth of GDP in 2010 and +1.7% in 2011, whereas under the adverse scenario the GDP would not grow in 2010 and would decline by -0.4% in 2011. Aggregate results: Based on the results of the calculations, the aggregate Tier 1 capital ratio, used as a common measure of banks’ resilience to shocks, would decrease under the adverse scenario including sovereign shock from 10.3% in 2009 to 9.2% by the end of 2011. It should be noted that the aggregate Tier 1 capital ratio incorporates approximately 169.6 bn € of government capital support provided until 1 July 2010, which represents approximately 1.2 percentage point of the aggregate Tier 1 capital ratio. Probabilities of Default and Loss given Default: Estimates of probabilities of default (PD)13 and loss given default (LGD)14 parameters were computed at the country level for five main portfolios (financial institutions, sovereign, corporate, consumer credit and retail real estate). For all countries in the exercise, these parameters were computed for both the benchmark and adverse scenarios for 2010 to 2011.15. 17 For details see “www.moodyskmv.com”. 18 PD and LGD levels for 2009 were calibrated on the basis of results from data collections from national authorities, various surveys conducted by the CEBS and the ECB, and market information. Sovereign bond haircuts: The increase in bond yields affects the valuation of holdings of government debt in the banks’ trading books,19 and in the exercise its impact is not offset by changes in the valuation of derivative positions (credit derivatives, interest rate swaps, etc.) that are used to hedge the sovereign bond exposures. For the purposes of estimating valuation haircuts, it was agreed among participating supervisors that a five-year maturity was representative of the approximate duration of sovereign bond holdings held by banks in the EU. Hence, the haircuts for sovereign bonds are computed in two steps, first by estimating five-year bond yields, consistent with the assumptions for ten-year yields and then, in a second step, translating these five-year yields into their corresponding sovereign bond prices.

US Stocks Mixed After Bank Stress Test Results. JULY 23, 2010, 12:24 P.M. ET. NEW YORK (Dow Jones)--U.S. stocks edged up Friday after all but seven European banks passed stress tests, but investors questioned whether the tests had been rigorous enough to allay concerns over their stability. The Dow Jones Industrial Average recently rose 20 points, or 0.2%, to 10344. The Standard & Poor's 500-share index edged up to 1094. The Nasdaq Composite slipped 0.3% to 2240. "Most trading desks as well as the market are still trying to digest the headlines, but for the most part it seems like banks have passed the stress tests," said Ryan Larson, head of U.S. equity trading at RBC Global Asset Management. "The question regarding the stress tests is the metrics behind the tests themselves in terms of what European regulators looked at. It's still somewhat of an uncertainty." All French, Portuguese and Dutch banks passed the tests, as did all but one of Germany's banks, but more than one of Spain's banks failed. But investors have questioned whether the tests were rigorous enough to prevent confidence from eroding in the future.