Stress Test Speculation Slams Euro Lower, ECB Warns about Unconfirmed Media Reports

According to reports by the Spanish news agency Efe, eleven European banks have failed the European Central Bank’s (ECB) stress tests. The newswire reported that Erste Bank and another unnamed Austrian bank, Belgian Dexia, Greece's Alpha Bank, Piraeus Bank and Eurobank, Italian Banco Popolare, Monte dei Paschi and Banca Popolare di Milano, Portugal's Millennium BCP and an unnamed Cypriot bank have all failed the mandatory health check performed by the ECB.

The ECB addressed the report in a statement, and according to an ECB spokesperson, “The comprehensive assessment, which consists of an asset quality review and stress tests of bank balance sheets, is not yet completed. No final results have been sent to banks involved.”

“The results will not be final until they are considered by the Governing Council of the European Central Bank on Sunday, 26 October, after which they will be published. Until that time, any media reports on the outcome of the tests are by their nature highly speculative,” the statement concluded.

Nevertheless, the technical damage to the EUR/USD pair has already been done by the Spanish report and the euro slipped to one week lows around 1.2650. The European Banking Authority is conducting an annual stress test which consists of simulating an adverse macroeconomic scenario aiming to assess the EU banking system’s resilience.

The measure has been an essential part of the post financial crisis policies aiming to bring additional transparency to the banking system. However, the stress tests notoriously failed in 2011 as the Franco-Belgian bank, Dexia, passed the test and three months later required a government bailout.