90 seconds at 9 am: 7 banks fail European stress tests; OCR hike due

90 seconds at 9 am: 7 banks fail European stress tests; OCR hike due

Bernard Hickey details the key news over the weekend in association with BNZ, including news that 7 of 91 banks failed widely anticipated European bank stress tests released over the weekend.

One German bank, One Greek bank and 5 Spanish banks failed the tests, which measured whether banks' tier one capital would fall under a threshold if sovereign bond prices fell by a certain level.

See more detail on the stress tests here.

This was better than expected, but has prompted concerns about just how stressful the tests were.

The tests did not include any sovereign bond default and only measured the effect of falling bond prices on the trading portions of the banks' sovereign debt holdings, not the entire portions.

This may not be the circuit breaker for European Financial Markets that the U.S. bank stress test results were in America.

The euro strengthened slightly against the US dollar, but fell against the New Zealand dollar, which opened around 72.6 USc.

Meanwhile, the Reserve Bank of New Zealand is widely expected to increase the Official Cash Rate again on Thursday as it continues to remove stimulus from the economy.

Most expect it to increase the OCR by 25 basis points to 3%.

This would likely be followed by rises in floating mortgage rates to around 6.25%, which brings it closer to 2 year fixed rates of around 6.95%. See all bank mortgage rates here.

See more detail on a likely OCR rise here.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Les,

I think hiking the CFR to 90% would cause an immediate freeze in new lending to everyone. That would be much more damaging to the productive sector than an OCR at 5%.

If you wanted exporter pain, that would do the trick in spades.

cheers

Bernard

Apologies to all, but we're having some problems with Captcha at the moment for those looking to post links.

Please email me with the links at bernard.hickey@interest.co.nz and I will put them up into your comments.

 

cheers

Bernard