Stress tests, v.2

The folks have been howling that the recent EBA stress tests conducted on euro zone banks failed to include the possibility of of defaults, haircuts, burden sharing or whatever affecting the value of their sovereign debt holdings. One would have to assume that equity markets, however, have taken this into account.

The included charts, notwithstanding that Spanish guvvies are yielding more than their Italian counterparts, give some indication as to the probabilities assigned by equity investors. Spanish exposure was far less penalized than Italian since July 1st. Click on them to read the explanatory material.

The data were provided by Olaf Storbeck through his website, Economic Intelligence. He's taken the enormous trouble to list on a spreadsheet the peripheral sovereign debt exposure for each and every of the 90 banks submitting to the stress tests.

Some people really do add something extra to the internet - but they're so very few and far between.

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