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Stress test reaction: Investors like it, but analysts say it leaves more questions than answers

The stress tests for European banks have received mixed reactions, with initial responses arguing that the value of the tests is close to negligible.

 By Poorna Harjani

Some observers have even chosen to call the scenario a “non-event”. Others have viewed the tests as having the intended benefits in offsetting market anxieties, giving clarity and further assurance to the wider industry that banks will be able to ride out future possible economic downturns and defaults in sovereign debt holdings.

Financial Stability Board chairman Mario Draghi said: “The results provide additional clarity and transparency on the strength of the European banking sector”; and: “The EU stress test exercise is an important contribution to bolstering confidence in the European banking system.”

Bank of America Merrill Lynch carried out a comprehensive investor survey to assess feedback of the stress tests from some of Europe’s most senior fund managers in 165 different institutions and found a majority of 67% of respondents to have a positive reaction to the tests.

Perhaps most worrying for banks, which hoped the results of the stress tests would help restore access to capital markets, 67% of the investors polled did not see the test results as a reason to increase their weightings to the financial sector.

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