Europe, it is not bank’s balance sheets, but bank regulations, which most need a cleansing.

Sir, Huw van Steenis writes that stress tests “have the potential to accelerate the process of cleansing banks’ balance sheets to support economic recovery” "Bank stress tests need to be a catalyst for policy shifts in Europe” October 22.

Van Steenis also holds: We also need to address blockages to the flow of funding to companies… modestly recalibrating overlapping rules if they are holding back good lending”.

Forget about “modestly recalibrating” rules, that won’t cut it.

Unless that dangerously distorting risk aversion present in credit-risk-capital (equity) requirements for banks is not completely uprooted, Europe stands no chance of a sturdy economy… worse, it will only stall and fall.

Absolutely nothing is gained by cleaning up the balance sheets of banks, if these are still given the incentives to go to where, credit-wise, it is perceived to be “absolutely safe”, and to stay away from what is deemed “risky”… like lending to SMEs and entreprenuers.