Now that most European banks have passed their stress tests, they still face a stiffer challenge in the coming months, the ability to raise billions of dollars of long-term funding to finance new lending.
Europe’s economic recovery may be at stake if banks are not able to pull off their long-term goal. Unlike the situation in the U.S., a large majority of companies in Europe depend on banks for their finances. Unless the banks can tempt investors in the bond markets, they won’t be able to make long-term loans to allow businesses to finance investment.