Stress Test Recap: The Game Was Rigged

The results of the European bank stress tests are in and at first glance, the numbers look better than expected, leading some to consider whether everything's coming up roses for markets.


7 of 91 European banks failed the stress tests with an overall capital shortfall of 3.5 billion euros ($4.5 billion). Coming into the day, it was expected that 10 banks would fail.

Investor reaction was muted for a good reason: the tests were rigged! The CEBS stress tests didn't include a risk that many believe still persists: that of a sovereign default. How would these banks do if a country like Greece defaulted? Perhaps we'll never have to know, but when the game is rigged for a specific outcome, it sure is tough to trust the box score.

Image by Flickr User Swami Stream, CC 2.0