When Stress Tests Fail – Italian Banks Are Collapsing

Despite the ban on short-sales – which has never worked in the past to do anything but instil fear in traders’ holding long positions – Italian banks are in free-fall following the utter failure of Draghi’s stress tests to encourage confidence in the European banking system.

Given the post-”whatever-it-takes” world of domestic sovereign bond-buying, it is no surprise that Italian govvie risk is jumping higher and the FTSEMIB is plunging.

“A relief rally would not be justified,” said Michael Woischneck, a portfolio manager at Lampe Asset Management in Dusseldorf, Germany. “There are still a lot of problems to fix, and Italian banks still have a lot of work to do. Even for the banks that passed, what is there to be relieved about? They still have to find a business model and figure out how to get unanswered questions that a stress test just cannot answer.”