As the whole world worried about a potential Greek collapse, another European country experienced two actual bank failures. And no, they did not happen in Portugal, Spain or Italy. In fact, the failures didn’t even occur in the eurozone. The country in question is Denmark.
Remember last year when the European Union’s banking stress test came to the comforting conclusion that, by and large, there were no reasons to be concerned about Europe’s financial system? Whether the methodology behind the Committee of European Banking Supervisors report in July 2010 was correct or overly lenient for the banks was controversial even then.
However, it was often overlooked that the CEBS report only dealt with 91 financial institutions, representing roughly two thirds of the EU’s banking sector. This means that many smaller banks were excluded from it. In Denmark, for example, only the three biggest banks (Danske Bank, Jyske Bank and Sydbank) were tested. The two Danish banks that failed this year, Amagerbanken – which collapsed in February – and Fjordbank Mors – which failed just two weeks ago – were not among them.
This begs the question of whether the much celebrated stress test last year amounted to more than just an exercise in calming the markets. And if it was no more than this, what other risks have been overlooked?