Coppola Comment

The Co-Op Bank has revealed its 2015 half-year results . And they are not pleasant reading. It has made a statutory loss before taxation of £204m, considerably worse than the £77m loss reported in the 2014 half-year accounts. And the Board advises that the bank will not return to profit for another couple of years. The background to this horrible report is the Bank of England's stress tests last autumn. I didn't bother to look at the results at the time, since it was always obvious that the Co-Op Bank was not going to pass the tests. They came too soon for it to have made serious improvements to its balance sheet after its near-collapse and traumatic recapitalisation in 2013. But I should have looked. The stress test failure was far worse than I had realised: The table shows that the adverse stress scenario, which modelled a severe property market crash, completely wiped out the Co-Op Bank's capital, leaving it insolvent. This is a major failure. Really, the Co-Op ...

This is not what you think it is. And it is not what I intended to write about, either. I was going to write about Latvia as it is now, after the deepest recession in the world in 2008-9 and an excruciatingly painful front-loaded fiscal consolidation. Has it really recovered, or is it just marking time? But in looking at Latvia now, I find myself drawn to its history. Latvia's unusual response to the kicking it got in 2008 was because of its history. It had a deep recession 1991-3 and a severe financial crisis in 1995. These experiences undoubtedly coloured its response to the 2008-9 disaster. We should not assume that the harsh medicine Latvia swallowed in 2009-13 would either work or be appropriate elsewhere. So, Latvia. For those who have never heard of it (apart from bad Eurovision songs ), it is a tiny country sandwiched between Lithuania and Estonia, bordered on the East by Russia and Belarus and facing Sweden across the Baltic Sea. Here's a map: Although Latv...

At Pieria, I deliver my verdict on the EU's stress tests. The ECB did a good job with the AQR, but the EBA's stress tests were not stressful enough . And then I turn my attention to the UK's forthcoming stress tests. On Forbes, I complain that despite the Bank of England's intention to make its stress tests both more severe and more realistic, it fails on both counts. The UK's stress tests are just as flawed as the EU's . Oh dear.