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Europes pressured banks Jun 24th 2010 | from PRINT EDITION ACCORDING to the version of financial history favoured by America’s Treasury and the Federal Reserve, the “stress tests” they did on big American banks in the first half of 2009 were a turning-point in the crisis. By independently examining banks’ books, estimating losses, making public the results and forcing banks to raise capital, they restored market confidence. Reality is more complex than that—the bail-outs of Citigroup and Bank of America in early 2009 had just a bit to do with restoring confidence, too. Europeans tend to view the tests as a dazzling piece of PR, followed by brazen trumpet-blowing. One banker says the American experience was both “fantastic and a little depressing”. A regulator agrees: “People have a naive view about what stress tests can deliver.” Yet with funding markets almost closed to some of their banks, many Europeans have changed their minds. The difficulties of Spanish banks are well known. Portugal’s banks have also been tapping the European Central Bank (ECB) at a furious pace. There is talk that the malaise has spread to Italy. Americans are particularly reluctant to lend. Huw van Steenis at Morgan Stanley says that more banks now accept that an American-style stress test may be needed to restore confidence. Spain has become a passionate advocate and others have signed up, too. On June 17th the European Union’s leaders agreed that stress tests should be made public in late July. The good news is that a process already exists for doing stress tests. The bad news is that it involves the kind of European group-hug that inspires derision, not confidence, in hedge-fund managers. America’s tests were run in military style by the Fed, with the Treasury writing the cheques. In Europe the economic scenario is being set by the ECB and the European Commission, which is then interpreted by the Committee of European Banking Supervisors (CEBS), a quango of regulators run with a skelet