ECB Stress Tests Unlikely to Solve the Problem, Says City Expert

The European Central Bank’s (ECB) publication of the bank stress tests is “unlikely to solve the problem” faced by the European banking sector, according to a City expert.

Mark O’Sullivan, director of dealing at foreign exchange (FX) firm Currencies Direct, said: “As we await the results of the European bank stress tests, whatever the outcome it seems highly unlikely they will solve the confidence problem that still plagues the European banking sector. If the stress tests are seen as weak then they would lose their credibility, and if they are too harsh then the currency markets could be spooked, making a fragile situation even worse.

“If the tests are seen as transparent, then the credit markets that have remained locked down for many European banks could start to reopen. But if the market views the stress tests as simply a ‘smoke and mirrors’ exercise, things could get a lot worse for many European financial institutions,” he added.

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