- stress test they became popular after the Lehman Brothers crisis erupted. The logic is simple. Since it is recognized that compliance with supervisory parameters may not be sufficient to avoid bank failure, the largest banks are subjected to stress tests, the failure of which would have systemic effects. That is, it assesses whether the bank would have enough capital to resist the occurrence of an adverse scenario, such as a fall in GDP.
The idea is that if the supervisor announces that the bank has passed the test, the markets will be reassured and, thus, the uncertainty and volatility of the bank's share prices will be reduced.
Unfortunately, this noble intent clashes with the facts. The date of the stress tests has become the focal point for speculation: betting, first, that the test fails for a bank, causes its market capitalization to collapse and thus makes it more likely that, in fact, that bank will not pass the test.
In short, instead of clarifying and promoting the recovery of public trust in banks, stress tests risk contributing to amplifying uncertainty, volatility and even paving the way for prophecies which, perhaps unfounded, become self-fulfilling. Then there is the question of the asymmetric treatment between credit risks and financial risks.
It is undoubtedly easier to measure the link between credit risk and GDP than that between financial risk and GDP. This can lead to tests correctly estimating credit risks but underestimating financial risks. And this is bad news for Italian banks which, as is known, are the ones in Europe that do the most credit and least finance. In the end, one really has to wonder if stress testing anxiety is of any use to anyone other than speculators.
