Over the course of the past several years, the European Central Bank (ECB), like its counterpart central bank in the United States, has conducted systemic risk assessments of the largest banks within its jurisdiction. Despite promises of transparency and honest assessment, the findings have proven to be largely hollow and some institutions, most notable Spain's Bankia, were actually in far worse shape than the condition expressed in the stress tests. The failure to adequately judge the financial state of these important banks may be one of the reasons for plunging confidence for both consumers and investors.
According to Die Zeit, a German-language newspaper, the investigation will focus on the balance sheets of up to 140 banks throughout the eurozone, especially those in France, Italy and Spain. The justification for this appears to be the slow-burning credit crisis that has plagued the continent for years following Greece's initial admission that it had lied about its financial health.
Set for the autumn of this year, the audit aims to establish which banks would face the risk of collapse during adverse economic conditions. It's unclear at present what the exact parameters for the test will be, considering that most European nations are still mired in recession.
Exacerbating the initiative are reports that the governments of France and Italy are highly averse to the idea of the ECB putting its nose in the books of their respective financial systems. Additionally, any information exposed that hints at instability in a large bank's balance sheets could create significant market risk.
This development suggests that problems with Europe's banks have not gone away and that the global economy could take a hit if these issues persist. As such, all Americans – especially those nearing retirement – may want to take steps to protect themselves financially.