A comprehensive stress test of European banks must also include analyzing what is not on their balance sheets.

Sir, I would like to refer to analysis of the European banks “Still unstable” June 4. 

There, quoting RBS figure it says “for taxpayers to be isolated from future banking crises balance sheets need to be strengthened by more than €400bn”. Since that amount represents only about 1.3 percent of “the combined size of European’s banks balance sheets -€30.7tn-” I would indeed say that is quite an understatement, unless any future expected banking crises are extremely small.

But not only taxpayers are interested in the banks… what about the borrowers? How much capital will it take to satisfy the financing needs of Europe?

My objection with all stress-testing going on with respect of the assets that are on the balance sheets of European banks, is that it completely ignores the assets that needs to be on these balance sheets, if the unemployed European youth is going to stand a chance of not becoming a lost generation.

For instance what about all those loans to middle and small companies, entrepreneurs and start-ups which are not on the books only because dumb regulators require banks to hold more equity against these than against assets deemed, ex ante, as absolutely safe?

PS. Again, for the umpteenth time, there is no growth-hormone as potent for the Too Big To Fail banks, than the risk-weighted capital requirements which allow banks to hold very little capital against assets perceived ex ante as absolutely-safe… precisely those assets of which all major bank crises are made of.