Daniel Davies: European Banking Stress Tests–Pour Encourager les Autres?: “It will turn out, I think…

…that a lot of banks will fail on the front cover, but pass at the back of the book–this would happen, for example, if a bank was made aware early in the year that it was at risk, and decided to do something about it. I think I can see the thinking behind this way of presenting the results. The Euroland supervisors are hoping that the headline news will be made by the front pages of the reports, so they will be able to have it both ways–a big headline in the Financial Times and the Wall Street Journal saying that their test was credible because it failed so many big names, while at the same time tipping the wink to market analysts that most of the ‘failures’ were not really failures at all, and that nearly all of the required recapitalisations have already happened. To be honest, I find this communication strategy rather clever…