New York City, New York – (StockNewsDesk) – 10/25/2014 — Although the euro zone’s largest economy, Germany, showed signs of economic improvement, the area is facing major threats like deflation. According to the most recent data released, 25 of the euro zone banks are all set to fail the stress test. Of the 25, 10 lenders will surely face a capital shortfall should a financial crisis emerge. One hundred five banks and lenders have passed the test. In the past, the ECB has taken stress tests; however, there were no irregularities. But since the Europe crisis in 2012, ECB’s ulterior motive is to make the banks and lenders safe.
Greece, Italy, Spain, Ireland
In a scenario where a financial crisis emerges, banks and lenders in Greece, Spain, Italy and Ireland are highly vulnerable to the crisis. Every bank has to pass the Asset-Quality review if the banks have to clear the stress test. In order to pass the Asset-Quality review, a bank or lender, at any point of time, should hold at least that much Tier 1 Capital which is equal to 8% of the risk-weighted assets. The proportion is 5.5% in an adverse stress-test.
Deutsche Bank, Germany’s largest lender, is all set to stress test. The Tier 1 capital of the lender stands at 8.8%, while under the adverse stress test, the Tier 1 capital stands at 12.6%. Two lenders that have to fill in capital to avoid a shortfall are Monte Paschi and Banca Carige SPA. Monte Paschi might consider selling off assets to fill in the gap rather than selling its equity in the market. The selling of equity in the market may make the company vulnerable to potential financial risks.
US Markets – Best Week since 2013
The US markets have seen the best week in history after economic indicators suggested an improvement in the broader economy. The S&P 500 has gained near 5% in a week. Readings on manufacturing, production, services and housing data bettered expectations boosting investor confidence. VIX, a barometer of measuring investor fear in markets, fell to its lowest level in more than half a decade. Of the S&P 500 companies that have released results, 80% of them have beaten the Street’s expectations while 61% of them have beaten revenue expectations.On Oct 28-29, a Fed Reserve meeting will decide the fate of interest rates and bond-buying program, and euro zone countries will decide on encouraging corporate bond buying program to kick-start the economy. There are concerns over decreasing crude oil prices and deflation, but these readings will improve as the economy improves.