By Michael Yoshikami, President, YCMNET Advisors
After a highly anticipated week of leaks and rumors over how many and which EU banks would pass or fail the "stress test", the results are in. Only seven of 91 European banks flunked. Such a surprise... well, not really. On the face of it, this seems like good news. Only seven -- not a third, not half, or three-quarters -- have issues. Only five banks in Spain and one each in Germany and Greece failed the test. Every major international bank headquartered in the European Union passed the tests, including Deutsche Bank and Royal Bank of Scotland. The state of financial institutions in the EU is healthier than investors and creditors had thought, which should boost market confidence. And frankly, that was the point of the exercise. The same type of tests helped U.S. financial firms such as Citigroup and Wells Fargo move forward from the economic downturn of 2008. The aim of the stress test was to clear up market fears about the strength of the European continent's banking system in dealing with the debt crisis. It was also an attempt to reassure financial markets that eurozone banks have balance sheets that could really withstand sovereign risk shocks. The EU called the results a resounding vote of confidence that "confirms the overall resilience" of the banking system. But are investors and markets left feeling more reassured... or more unsettled? Are European banks that healthy? Do we really believe that these banks can withstand sovereign risk shocks?
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