EU bank stress tests looming

FXstreet.com (Barcelona) - With the market jittery over the risks of contagion, the European financial sector is being put under the spotlight as another round of bank stress tests are to be released this Friday. In particular, the Spanish and Italian banking sectors are of noted importance as they both have seen a substantial loss of confidence in recent days.

Of the two, Spanish banks are noted to be in a weaker position based not only on their exposure to government debt amid rising borrowing costs, but as well as more fundamental problems which can only be fixed through restructuring. The Italian´s problem on the other hand is believed to be particularly related to the debt crisis, especially as they are among the highest owners of government bonds in the community at 13%. Thus, both will continue to be under immense pressure until the Eurozone finance ministers are able to come up with a plan to tackle the Greek situation.

Regarding the bank stress tests, the Spanish newpaper ABC has today reported that two unidentified commercial banks are likely to fail, apart from a number of “cajas”, or savings banks, which have already been widely known to not meet required capital levels. The failed entities will then have 6 months to reach the required levels.

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