All Europe’s banks would fail a test of whether they allocate bank credit efficiently.

Sir, Gavyn Davies writes “Stress tests will not themselves bring the Eurozone back to health” October 28.

He is absolutely right, because for that to occur it would all have to start with a test of how European banks are helping the Eurozone, and since the credit-risk-weighted capital requirements that caused the current deep economic malaise are still in place, banks would clearly fail that test.

Davies also correctly holds that “not all of the problems of a diverse banking system can be fixed at once”, but, unfortunately, all the banks can be made to have problems, by means of just one systemically faulty bank regulation.

And so when Davies writes “banks need to restore their risk appetite, having spent several years preferring to build their capital buffers rather than lending to risky small businesses” I must ask where has he been. Does he not know that banks, because of credit-risk-weighing are primarily building up their capital buffers, precisely by not lending to anything that requires them to have more capital?

Davies, concludes with “The best that can now be said is that a dysfunctional banking system should no longer be a fatal impediment to growth, on the optimistic assumption that the [fiscal, monetary, structural] and other measures that Mario Draghi has promised – including a sizeable monetary stimulus - come on stream.”

No way! Doubling down on a still so dysfunctional banking system would just waste away a sizable monetary stimulus- making it all so much more dangerous for Europe.