- Less than 3 months ago, the European financial regulators suggested that as a result of the latest round of stress tests, European banks needed to raise less than 10 billion euros in new capital.
- Less than 2 months ago, the IMF suggested that European banks needed to raise between 200 and 300 billion euros of new capital.
- Less than 1 month ago, US Treasury Secretary Tim Geithner suggested that between European banks and at-risk sovereigns, there was a need to raise 2 trillion euros.
Admittedly, it includes funding for sovereign bailouts. However, it strains credibility to believe that it includes the European financial regulators' estimate of capital needed by the banks and not the IMF's.
Given the US experience with stress tests, I am not naive enough to believe that the results of the tests provided to the public did not understate the amount of capital the tests actually found was needed. I just do not believe that the financial regulators would release numbers that are off by a factor of 10. It is far too likely that the market will quickly discover the shortfall and the resultant loss in the financial regulators' credibility will fuel the fear of just how bad shape the global financial system is in.