The first two European bank stress tests were simply jokes without punch lines. Failing to fully take into consideration sovereign default risks doesn't even illustrate How Greece Killed Its Own Banks!not to mention several other countries and the ECB. That was then, this now. Here are some factual BoomBustBlog tidbits to chew on:

• A full eighteen Percent of the EU is Literally rated junk by the predominant ratings agencies
• Greece is rated CCC. Approximately 90% of the entities rated CCC default, historically...
• Greek Asset Sales Fall Short, As We Virtually Guaranteed They Would In Spring 2010 

• Greece & Portugal Are Worse Off Than Central/South America During the Argentienian Debt Crisis The PIIGS Nations' Problems Are Structural Not Cyclical, Thus Bailout Loans Simply Pave the Way For Asset Confiscation Down the Road

• Greek contagion is spreading quickly... Italian Bank Problems Now At The Forefront and BoomBustBlog Traders Armed With BoomBustBlog Research Caught ~10% Deutsche Bank Fall 
• I have shown that not only have the previous stress tests been rebuffed but "Another Banking Crisis Inevitable?
• And last but not least, It Should Be Obvious To Many That The Risk Of Defaulting Sovereign Bonds Can Spark A European Banking Crisis

 It is simply a damn shame that it has come to this. What the political powers that be in Europe have done in their grasp to disseminate obvious mis/disinformation is to sow the seeds for history's first Pan-European bank run! It is more than obvious to the entire world that Eighteen Percent of the EU is Literally Junk, Carried As Risk Free Assets at Par Using 30x+ Leverage. What is the purpose of attempting to conceal facts hidden in plain site?

Bloomberg reports: Stress Tests Compromised by Greek Non-Default

European regulators’ attempts to bolster confidence in the region’s banking industry today are being undermined by their unwillingness to test for a Greek default and a mutiny by Germany’s Landesbank Hessen-Thueringen.

The European Banking Authority will release the results of the stress tests for 91 banks as part of an effort to reassure investors the region’s banks have sufficient capital. Helaba, as the landesbank is known, refused to allow the EBA to publish its results in full, saying the EBA’s data “would lead to a halving of the core capital without legal grounds.”German regulator Bafin has also attacked the London-based EBA. Bafin Chairman Jochen Sanio said last month the watchdog lacks “legitimacy.”

The assessments are the first by the EBA since it was set up earlier this year. Last year’s tests by its predecessor were criticized for not being tough enough because banks were shown to need only 3.5 billion euros ($5 billion) more capital, a 10th of the lowest analyst estimate. The EBA can’t force banks to take part, and can’t test for a sovereign default, which policy makers are struggling to avoid. Greece has about a one in 10 chance of avoiding default, credit default swaps show.

“The EBA has no teeth,” Bob Penn, financial-services partner at Allen & Overy LLP, said in a telephone interview in London. It can’t “make requirements from any individual bank because the framework was set up to allow national regulators to keep supervisory powers,” he said. “This isn’t Helaba poking a stick in the eye of the EBA, it’s Bafin.”

...“The new authority has been struggling to have more severe tests than last year,” Charles Wyplosz, director of the International Center for Money and Banking Studies in Geneva, said in a television interview with Tom Keene on “Bloomberg Surveillance” yesterday. “Last year was recognized as a joke. The new authority wants to be tougher, but I don’t think they are tough enough to convince the market,” he said. “The real question is: do we assume there is a serious default on serious public debt?”

It is apparently not understood by this group that if you obviously attempt to hide the truth of a very strong likelihood of default, you lose credibility... thus destroying confidence. It is the lack of confidence that leads to bank runs. Just ask the management of Bear Stearns and Lehman. I warned of those events ahead of time as well. It is amazing that lessons have not been learned from the past.

‘Depth Charge’

“The sovereign debt default problem is the depth charge to the credibility of this exercise,” Penn said. “There’s nothing the EBA can do about that because it’s politically unthinkable.”

Yeah, politics, that's the problem. To bad it's not economically unthinkable!

Standard & Poor’s own stress test, published in March, found European banks would need as much as 250 billion euros in fresh capital if faced with a “sharp” increase in yields and a “severe” economic downturn. In contrast, a survey of 113 investors by Goldman Sachs Group Inc. last month showed they expect banks to raise 29 billion euros after the tests.

I have shown beyond a shadow of a doubt what happens in the case of Greek default, with specificity through several arenas...

Live, at one of the largest banks of Northern Europe

Through prominent European television and print media...

Amsterdam's VPRO Backlight and Reggie Middleton on brutal honesty, destructive derivatives and the "overbanked" status of many European sovereign nations

Amsterdam's VPRO Backlight and Reggie Middleton on brutal honesty, destructive derivatives and the "overbanked" status of many European sovereign nations

Those who wish to download the full article in PDF format can do so here: Reggie Middleton on Stagflation, Sovereign Debt and the Potential for bank Failure at the ING ACADEMY-v2.

And last but not least, through my own BoomBustBlog...

Although the EU refuses to publish the truth, I have done so freely for blog subscribers and have available a detailed list, currently in its 3rd rendition, that explicitly walks though what will probably happen as any combination of the PIIGS group defaults.

Our most recent subscriber document explores the banking side of Greek failure - European Bank's Greece exposure, but I have put a significant amount of info into the public domain as well. If one were to even come close to marking the EU banks books to reality, market prices, or anything in between, the Lehman situation would look tame in compariosn! As excerpted from the subscriber document:  The Inevitability of Another Bank Crisis

Then there's the obvious twists from other impetuses:

•  It Should Be Obvious To Many That The Risk Of Defaulting Sovereign Bonds Can Spark A European Banking Crisis

• For Those Who Failed To Heed My Warnings On Portugal, Visualize The Contagion That Causes European Bank Failure!!!

And in the End, What Does It All Mean?

LGD 100+: What's the Possibility of Certain European Banks Having a Loss Given Default Approaching 100%?