Praying won't help

It's official: 25 of the eurozone's 130 most important banks failed the European Central Bank's in-depth review of their finances. The capital shortfalls total 25 billion euros. Thirteen banks must still close this gap, twelve have already done just that. The remaining 13 have two weeks to present their plans for making up for the deficit.

But have the stress tests really provided clarity?

"It was a very serious exercise, one that was taken seriously by all participants," the president of Germany's Federal Financial Supervisory Authority, Elke König, told DW.

But I was left with a completely different impression. At best, the test was an exercise with limited actual meaning for the health of those involved. At worst, it was a very labor-intensive search for those banks that will have to sell ECB head Mario Draghi their toxic assets.

The stress test fundamentally looked at whether a bank's capital buffers were sufficient to shield it from the risks of lending - especially in a crisis scenario, such as an economic downturn or the bursting of another real estate bubble.

That sounds reasonable. After all, the ECB will take over as the central banking supervisor for Europe's most important financial institutions on Nov. 4, and it does not want to be saddled with the responsibility of old risks. One design flaw of these tests, however, was that it left it up to the banks to assess their own risks. It is then, of course, tempting to paint a rosier picture of "risk-weighted" assets.

It would have been more honest to prescribe a fixed ratio of equity to total assets - but that would have meant failing far more than the 13 banks that did not pass this time around. This brings us to the next conflict, namely the acquisition of equity. Equity can be obtained by issuing new shares, for instance, or reducing risks - in short, issuing less credit.

But both have unpleasant side effects. It would be difficult to attract new investors with a reputation that has been tarnished by shareholders' displeasure over the value of their stocks being watered down. That is why the banks are going to make use of a second method - one with even more devastating consequences for the overall economy. They are going to issue less credit to the chagrin of the ECB, which has urged them to do just the opposite in order to supply the economy with sufficient money for investments.

Only 13 of the 130 biggest European banks are ailing. This smacks of praying for better fortune. "See? Everything's fine," one is led to believe. But history has shown that such praying has never worked.

Furthermore, the International Monetary Fund has provided altogether different figures after it looked at 300 big banks in industrialized countries. Measured according to total assets, 40 percent of the banks were found to be in a position where lending was not economically feasible. In the eurozone, a whopping 70 percent of banks had the same problem. The head of the IMF's Monetary and Capital Markets Department, José Viñals, has unequivocally stated that he considers these banks superfluous.

Ignoring this inconvenient truth, ECB head Mario Draghi has begun scooping up the largest credit risks of the southern banks, including those in France. These bad loans amount to 879 billion euros, according to the ECB. By doing this, the ECB is doing precisely what our politicians promised would never happen: the pooling of debt.

So while the stress test may have provided bankers with more clarity over the volume of toxic assets circulating in Europe, it has not made Europe's banking landscape the least bit safer or more stable.