Money Morning Mailbag: Jaded Investors Cast Wary Eye On Scope of Bank Stress Tests

The results of Europe's bank stress tests are due July 23. But the question remains whether the tests will shed enough light on the banking sector to restore investor confidence.

"All these stress tests mean that we are peeling away layers of the onions, but chances are we are not going to get the full clarity that we as investors deserve," Neil Dwane, chief investment officer for Europe at equities specialist firm RCM, told The New York Times.

Readers who are already on guard from Wall Street manipulation and stalled financial reform have pulled back from volatile markets and are skeptical about the effectiveness of bank stress tests:


I am currently out of the market and may never return simply because I feel I'm being "played" by "Big Money," big banks, etc. like a pawn in a chess game.

My faith in the system is all but gone. Governments will print more money and we all know that eventually ends. We now have countries that are broke like Greece, Italy, etc.

Lastly, can we really believe that the European banks are going to tell the whole truth about the stress tests? Just more smoke and mirrors.

- J.D. 

The goal of the Committee of European Banking Supervisors (CEBS), which is coordinating the tests, is to determine which banks need to raise more capital to withstand a variety of damaging economic conditions. The European Union (EU) already widened the tests' scope under investor pressure to increase transparency to include more banks and test for protection against a sovereign debt crisis stemming from Greece.

The tests now include 91 banks and will include a "sovereign risk shock element" by projecting haircuts of 40% on the value of Greek bonds.

But the tests still hold many unknowns, like the scale of haircut on Spanish and other debt-laden nations' bonds, what the required capital ratio will be, and how long banks will have to raise funds.