Dexia – another awkward result November 8, 2012 at 11:05 am

In July 2011:

Dexia was subject to the 2011 EU-wide stress test conducted by the European Banking Authority… As a result of the assumed shock, the estimated consolidated Core Tier 1 capital ratio of Dexia would change to 10.4% under the adverse scenario in 2012… the results determine that Dexia meets the capital benchmark set out for the purpose of the stress test.

And today, according to Bloomberg:

Belgium and France, wrestling for more than a year over the second rescue of Dexia, agreed on a 5.5 billion-euro ($7 billion) recapitalization of the bank.

As Jonathan Weil said last year, you can’t believe anything about regulatory capital benchmarks, in Europe or elsewhere, stressed or not. That’s because the capital ratio only makes sense if you believe the banks’ valuations and loan loss provisions are correct – and Dexia demonstrates vividly (as Wachovia and Lehman and Wamu and so many others did during the crisis) that they can be materially wrong for years.

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