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Europe banks brace for tougher stress test

Review is part of a broader effort to create uniform system of regulation for banks

Published Sun, Oct 19, 2014 · 09:50 PM

Frankfurt

THE global market turmoil is a vivid reminder that the European crisis didn't go away - it has just been lying dormant. One big reason is that authorities never dealt with the dysfunctional banking system. And investors are increasingly concerned that more problems might be lurking in the banks' books.

The European Central Bank is trying to restore confidence with a deep dive into the banks to determine which are in good shape, which need to shore up their finances and which should be shut down. But the results, which are set to be released next weekend, may further rattle the markets if banks unexpectedly have to write down bad loans and quickly raise capital.

Officials say the short-term pain is necessary to put the European economy back on track. Regulators in the United States forced a similar catharsis on American banks in 2009, helping set the stage fo…

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