Colin Barr

Following the money in banking, economics, and Washington

Geithner gets his euro stress tests

June 17, 2010: 12:30 PM ET

Tim Geithner will get his European stress tests.

Three weeks after the Treasury secretary paid them a visit, European leaders are uniting behind plans to publicly report on the strength of big euro zone banks. European Union officials are close to a deal, the Financial Times reports.

Gets his way in Europe

The big push is coming from Spain, which has been taking a beating in the financial markets and would like to make it stop. Shares of the big Spanish banks Santander (STD) and Banco Bilbao (BBVA) have fallen sharply this year amid questions about exposure to the nation's fallen property sector.

But Germany, which has been a skeptic of the whole idea, has now flip-flopped and is moving forward as well -- though not without some caveats.

Axel Weber, the head of Germany's central bank, said regulators are conducting stress tests on German banks and will publish results next month. But warned that publishing tests on banks in weaker countries could backfire if governments aren't ready to provide capital to stressed institutions -- or, conversely, if the commitments are viewed as open-ended.

"Any stress test only makes sense if it is accompanied by a corresponding commitment by the respective government to drive forward the process of recapitalization and the guarantee of liquidity," he said in a speech Thursday, Dow Jones reported.

For its part, Spain says it is ready and willing to fill the holes on bank balance sheets, however large skeptics suspect they may be.

Bank of Spain governor Miguel Fernández Ordóñez said in a speech Wednesday that publishing results will "provide the markets with a perfectly clear idea of the situation of the Spanish banking system."

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About This Author
Colin Barr
Colin Barr
Senior Writer, Fortune

Colin Barr has covered finance for Fortune.com since November 2007. Previously he was a writer and editor for TheStreet.com, winning a 2006 Society of American Business Editors and Writers award for "The Five Dumbest Things on Wall Street," and for Dow Jones Newswires. He is a 1991 graduate of Penn State and lives in Port Washington, N.Y., with his wife Meena Bose and their two kids.

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