Macroscope | Banking sector showcases divide in US, Europe handling of 2008 crisis
America's measures during the financial crisis helped to clean up its lenders, but Europe isstill behind the curve in the banking world
For the clearest example of the contrast between the United States government's handling of the 2008 financial crisis and Europe's response, look no further than the banking sector.
While US policymakers' overriding priority was to restore confidence in the country's banks, their European counterparts were more concerned about shoring up sovereign finances following the fiscal meltdown in Greece in 2010.
In one of the most authoritative reports on the euro zone written months before the dramatic escalation of the crisis in November 2011, Nomura noted that "the US moved earlier to address its banking issues [while] Europe has moved earlier to address its fiscal [ones]. Each must now follow the other's example."
While the US budget deficit as a share of gross domestic product has at least fallen from double digits as recently as 2011 to 5.7 per cent of GDP last year, the euro zone is still struggling to put its banking sector on a firmer footing.
The good news is that a milestone was passed last Sunday with the publication of the euro zone's "comprehensive assessment" of 130 of the bloc's biggest banks. The exercise involved more rigorous stress tests and an asset quality review (AQR) of lenders' balance sheets.
Not only were the tests a significant improvement on the much-derided 2011 check-ups which gave a clean bill of health to Belgium's Dexia and several Irish banks only months before the lenders had to be rescued, they were undertaken by the European Central Bank - in cooperation with the European Banking Authority - as part of its preparatory work ahead of taking charge of banking regulation across the euro zone on November 4.
While the better-than-expected results - among the 25 banks whose capital buffers were not big enough to withstand an economic crisis, only nine still need to raise additional capital amounting to less than €10 billion (HK$98.6 billion) - have again called into question the credibility of the tests, analysts give the ECB top marks for vetting banks' balance sheets much more thoroughly this time round.