No one really knows how insolvent EU banks really are since the ECB allowed some to cheat on their ‘stress tests’

Over the past year both the Federal Reserve and the European Central Bank (ECB) conducted a number of ‘stress tests’ to try to gauge how strong or even insolvent many of their member institutions really are.  In the U.S., the Fed gave a blanket approval to nearly all their major banks, which then led several of them to cash out their emergency reserves and use them to buy back stock in order to boost bonuses and improve their share prices.

However over in Europe the ECB went one step further and allowed some of their banks, including the now in focus Deutsche Bank, to cheat on their test and be declared fine when in fact they teetered on the brink of insolvency, and now threaten the entire European financial system.

In the latest scandal to emerge involving Deutsche Bank, earlier today the FT reported that German’s largest lender was allowed to cheat, pardon was given “special treatment” by the ECB in the July stress tests.  As part of the July stress tests results, which “promised to restore faith in Europe’s banks by assessing all of their finances in the same way” Deutsche Bank’s result was boosted by a “special concession” agreed to by Mario Draghi: DB’s results included the $4 billion in proceeds from selling its stake in Chinese lender Hua Xia even though the deal had not been done by the end of 2015, the official cut-off point for transactions to be included.

While the Hua Xia sale was agreed in December 2015, it has still not been completed and now faces a delay after missing a regulatory deadline last month, though the bank is still confident of completion this year.

As the FT notes, the Hua Xia treatment was disclosed in a footnote to Deutsche’s stress test results, and adds that “none of the other 50 banks in the stress tests had similar footnotes, even though several also had deals agreed but not completed at the end of 2015.”

As disclosed in the central bank’s summer stress test, Deutsche’s common equity tier one capital fell to 7.8% after it was “subjected to the stress tests’ imagined doomsday scenario of fines, low interest rates and low economic growth.” However, without the Hua Xia boost, the ratio would have been 7.4%, a level comfortably above regulatory minimums. Why the special treatment? Because the higher published result helped reassure investors who were growing increasingly nervy about the bank’s capital adequacy. – Zerohedge

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Yet despite the overwhelming approval by the Fed and the ECB that banks under their authority easily passed their comical ‘stress test’, the fact of the matter is that these tests were all a sham since they never required the banks to have to ‘mark to market’ assets on their books.  If this has been done rather than allowing them to ‘mark to model’, nearly every major bank in the U.S. and in Europe would not only be insolvent, but would require new capitalization ranging in the tens to hundreds of trillions of dollars.

Since the 2008 financial crisis, central banks have not truly been engineered towards reforming banks so that another crisis of similar proportions could not happen again.  And like the fact that eight years after the collapse, and six years after Dodd-Frank was passed the banks still are not required to value their assets in a mark to market methodology as required via the Volker Rule, insolvent institutions can cover up their bankrupt balance sheets and appear to also be doing so with the help of the central banks.

Kenneth Schortgen Jr is a writer for The Daily Economist, Secretsofthefed.comRoguemoney.net, and Viral Liberty, and hosts the popular youtube podcast on Mondays, Wednesdays and Fridays. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.

HERE Is WHAT WILL HAPPEN If The DEEP STATE TAKES DOWN PRESIDENT TRUMP & It’s NOT PRETTY … FOR THEM “The tree of liberty must be refreshed with the blood of patriots and tyrants.” – Thomas Jefferson ELDER PATRIOT – Corrupt politicians ignore Jefferson’s directive to their own detriment. It’s no longer political, it’s personal. Americans have had their eyes opened by the ascension of Donald Trump and no amount of leftwing money can put the Freedom Movement genie back in the bottle. Conservative Senator Ted Cruz made that observation after reviewing the results of the 2016 elections and the expectations of the voters. Cruz, who had the most high profile personality clash with Donald Trump during the Republican primary process nevertheless embraced Trump’s America First agenda and said, “If we’re given the White House and both houses of Congress and we don’t deliver, I think there will be pitchforks and torches in the streets. 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One Hundred and Fifty-Seven years ago the Democrats waged a war against the First Republican President Abraham Lincoln for giving Blacks their freedom. That war came at a high price, as many as 700,000 Americans died fighting for what they believe in. To put that in perspective, these casualties exceed the nation’s loss in all its other wars, from the Revolution through Vietnam. Today, Americans are still prepared to fight and die to protect their children’s God-given freedoms. Despite what you are reading and hearing in the mainstream media, they aren’t the leftwing-funded rioters, the pussy hat-wearing feminists, or the cuck bois that cant handle a micro aggression. No, the Americans that back Donald Trump are well armed. Donald Trump’s presidency will move forward politically lest the sixty million patriots who voted for him, that are comprised of the large majority of military voters, police, and NRA members, move it forward by force. 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And, now that they’ve been caught robbing the world’s largest bank – the U.S. treasury – they have chosen to go out in a blaze of glory rather than try to defend the indefensible at trial. Washington’s criminal elites have chosen to go to war to unseat our duly elected president. It’s time to make our voices heard before this turns very ugly. Buckle your chin strap, America is counting on you. EDITORS NOTE: THIS IS NOT A CALL TO ARMS BUT RATHER AN ANALYSIS OF WHAT WOULD HAPPEN IF THE DEEP STATES OVERTURNS A DUELY ELECTED PRESIDENT. HERE IS A LIST OF EVERY SINGLE TIME OBAMA COMMITTED AN IMPEACHABLE OFFENSE THAT DEMS & MEDIA COVERED UP “Impeach!” It’s been more than eight years since Democrats uttered that word – long enough for anyone to wonder if it was still in their vocabulary, considering the deafening silence through the dozens of serious scandals during President Obama’s administration – but now that President Trump is the man in the White House, it’s back with a vengeance. Democrats everywhere are wildly slinging the “I” word, hoping to nail Trump for high crimes and misdemeanors after the New York Times claimed a memo written by former FBI Director James Comey said the president urged him to end the federal investigation into former national security adviser Michael Flynn. Some members of Congress are getting in on the action. They include Reps. Maxine Water, D-Calif., and Al Green, D-Texas. Even a Republican, Rep. Justin Amash, claimed Wednesday there are grounds to impeach President Trump. House Oversign Committee Chair Rep. Jason Chaffetz, R-Utah, asked for the alleged Comey memo and other documents. Chaffetz tweeted that he is prepared to subpoena the information. And Sen. John McCain, R-Ariz., invoked “Watergate.” Now the Democratic Party is reportedly poll testing impeachment as a 2018 election issue. More than 1 million people signed a petition calling on Congress to impeach Trump. Wasting no time Wednesday, the mainstream media sprang into action, enthusiastically echoing the left’s impeachment calls. MSNBC launched a Watergate ad implying Trump is America’s new Richard Nixon. “Watergate. We know its name because there were reporters who never stopped asking questions,” says MSNBC host Chris Hayes, who hinted that Trump is next on the impeachment chopping block. “Now, who knows where the questions will take us. But I know this: I’m not going to stop asking them.” Meanwhile, some overzealous members of the left plastered fliers around Washington, D.C., demanding all White House staffers resign Wednesday. The posters read: “If you work for this White House you are complicit in hate-mongering, lies, corrupt taking of Americans’ tax money via self-dealing and emoluments, and quite possibly federal crimes and treason. Also, any wars will be on your soul. … Resign now.” But constitutional scholar Jonathan Turley, who voted for President Obama, warned “impeachment” enthusiasts not to get ahead of themselves with President Trump. Why? At this time, there’s no evidence Trump actually committed a crime. “The criminal code demands more than what Comey reportedly describes in his memo,” Turley wrote in a May 17 opinion piece posted at the Hill. Turley explained: For the first time, the Comey memo pushes the litany of controversies surrounding Trump into the scope of the United States criminal code. However, if this is food for obstruction of justice, it is still an awfully thin soup. Some commentators seem to be alleging criminal conduct in office or calling for impeachment before Trump completed the words of his inaugural oath of office. Not surprising, within minutes of the New York Times report, the response was a chorus of breathless “gotcha” announcements. 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