Seven Banks in Europe Fail ?Stress Test? for Scant Capital FRANKFURT ? Seven of Europe?s 91 largest banks would struggle to survive an unexpected decline in economic growth or a sharp deterioration in the value of European government bonds, and will need to raise more capital, regulators said Friday in releasing results of closely watched bank stress tests. Banks to flunk were Hypo Real Estate, a bank based in Munich that is already government-owned after a bailout, ATEBank of Greece and five Spanish savings banks. Several other banks passed the test, but narrowly enough that they may also face market pressure to increase their reserves. That group included Postbank, one of Germany?s biggest publicly traded banks, which is 25 percent owned by Deutsche Bank. Governments in the countries affected, or the banks themselves, said they were ready with measures to raise more money for banks whose reserves were considered too low to withstand the worst-case outlooks. After months of turmoil in markets caused by Europe?s sovereign debt crisis and its effects on the banking system, governments and investors alike were looking to the tests to see if Europe could demonstrate that it was finally confronting the problems and dealing with them head on. Whether the tests succeed in reviving confidence depends on whether investors and analysts believe they were severe enough to expose vulnerable banks. ?The stricter the better for the euro,? said Adam Cole, global head of foreign exchange strategy at RBC Capital Markets. Nicolas Veron, a visiting fellow at the Peterson Institute for International Economics in Washington, called the level of detail released ?disappointing.? ?Investors cannot reverse-engineer the results and apply their own assumptions,? he said. Bank regulators and central bankers insisted that the tests were rigorous and that fears about the stability of European banks were overblown. ?It is a very serious test,? Franz-Christoph Zeitler, a member of the executive board of the Bundesbank, Germany?s central bank, said at a news conference in Frankfurt. ?All this criticism was absolutely premature.? The stress tests, similar to an exercise conducted in the United States last year, were intended to rebuild confidence in European financial institutions that has been shaken by the sovereign debt crisis. Uncertainty about which banks may be sitting on piles of Greek debt and other potentially toxic assets has made institutions reluctant to lend to each other as well as to businesses, and acted as a drag on economic growth. Some banks had already moved to raise capital ahead of the results. National Bank of Greece, which passed the test, said Friday that it sold ?450 million, or $580 million, of 10-year bonds to bolster its regulatory capital. ?The sale process was completed within just four days, reflecting the investment community?s confidence in N.B.G.,? the lender said. Banca Civica, a merger of three smaller savings banks in Spain, failed the test. But it said ahead of the results that it had signed an agreement with J.C.Flowers, a U.S. buyout firm, to place ?450 million in convertible bonds. Hypo Real Estate said the stress test had ?limited relevance? because it was already in the process of transferring troubled assets to a so-called bad bank underwritten by the German government. Miguel Angel Fernandez Ordonez, governor of the Bank of Spain, told a new conference that the stress test results vindicated the recent push to force the savings banks, or cajas, to consolidate, as well as the regulatory overhaul to open up their capital to more investors. The tests were evidence of ?the enormous means? of the Spanish banking sector to overcome a crisis, he said. ?When there are doubts, you have to be absolutely transparent, and this is what we have done.? In addition to Banca Civica, four other unlisted Spanish savings banks failed: Diada, Unnim, Espiga and CajaSur, which was bailed out by the Bank of Spain in May. In a potential blow to the tests? credibility, regulators did not examine whether banks could withstand a debt default by Greece or any other European country. European authorities ? in contrast to many economists ? consider such a possibility unthinkable. In a compromise, banks were scheduled to detail their holdings of Greek, Spanish, Portuguese and other sovereign bonds. But a report released by the European bank supervisors did not contain that information, which would clear up intense speculation about which banks are most exposed. To pass the tests, a bank?s Tier 1 capital, a measure of reserves, had to not drop below 6 percent of assets in the face of a new recession and a sovereign debt crisis.
Israel Puts Off Crisis Over Conversion Law JERUSALEM ? A growing crisis between American Jews and the Israeli government over a proposed law on religious conversion was averted ? or at least delayed ? this week, with both sides agreeing to a six-month period of negotiation. But the depth of American anger and the byzantine complexity of Israeli politics suggest that a solution is a long way off. Late Thursday night, the office of Prime Minister Benjamin Netanyahu issued a statement that Natan Sharansky, the head of the Jewish Agency, would lead a committee of the Reform, Conservative and Orthodox movements and that no conversion law would be submitted before January. Litigation in the Israeli Supreme Court on the same topic led by the Reform and Conservative movements would be suspended for the same period. The idea of delay came from Mr. Netanyahu, who said this week that the proposed law, which had passed a parliamentary committee, ?could tear apart the Jewish people.? He had received tens of thousands of enraged e-mail messages from American Jews who had been urged to contact him by their rabbis. Many American Jews consider the Netanyahu government to be too hawkish, and the conversion controversy is seen by some analysts here and in the United States as a proxy for a broader set of disagreements, including settlement building and the Gaza blockade. ?Please join me in writing an e-mail to Prime Minister Netanyahu to call a halt to this historic mistake,? wrote Rabbi Jeremy Kalmanofsky of Congregation Ansche Chesed on the Upper West Side last week in a typical appeal. ?Judaism and the Jewish people do not belong exclusively to the most reactionary among us!? Rabbi Shlomo Amar, the chief Sephardic rabbi of Israel, said in an interview that Mr. Netanyahu had told him he needed American Jews on his side in his negotiations with President Obama over peace with the Palestinians and the controversy over the conversion bill was getting in the way. The bill that so enraged American Jewish leaders was actually aimed at making conversion easier for the 300,000 Israelis who moved here from the former Soviet Union in the 1990s and are not, by Orthodox rabbinic law, considered Jewish because they come from mixed parentage. The law would have done that by granting conversion powers to local rabbis across the country, a group considered closer to their communities. But after objections from the ultra-Orthodox, the bill formally placed authority for conversion in the hands of the chief rabbinate and declared Orthodox Jewish law to be the basis of conversion, making Americans fear that their more lenient conversion processes would be invalidated. As Rabbi David Schuck of the Pelham Jewish Center in Westchester said of the bill, ?It spits in the face of Diaspora Jews in particular, and if passed, it would be an acquiescence of the majority of Israeli Jews to a fundamentalist interpretation of Judaism.? This was the only issue over the past six years on which he had asked congregants to take political action, he said. David Rotem, the lawmaker behind the conversion bill, said in an interview that such views were based on a misreading of it. ?They need to check the facts before they speak,? he said of Reform and Conservative Jewish leaders. ?They are acting like absolute idiots.? The question of ?who is a Jew?? is as old as the State of Israel. The more liberal forms of Jewish practice advocated by the Reform and Conservative movements, with which most American Jews are affiliated, have never taken root here. Israel has left liturgy in the hands of the Orthodox, with most Israeli Jews leading almost completely secular lives, seeking out rabbis only at birth, marriage and death. The idea is that helping to build the Jewish state is their central means of expressing their ethnic identity. By contrast, Jews abroad seek one another out in synagogues, and have come up with ways to integrate spirituality with identity, forging rituals that respect tradition while adjusting to careers and life in a non-Jewish world. The two approaches to Jewish identity have coexisted, and while there have been tensions they rarely came to blows. But several developments of recent years have altered that. First, the arrival of hundreds of thousands of Russian-speaking immigrants not considered Jewish has created an acute need in the eyes of Israeli leaders to find a way to integrate them in keeping with rabbinic tradition. Otherwise, they will not be able to marry, divorce or be buried here within Jewish tradition, and their children will feel deeply alienated. Mr. Rotem calls them ?a ticking bomb.? Second, the chief rabbinate, which for decades was in the hands of Orthodox Zionist parties, is now largely controlled by the non-Zionist ultra-Orthodox, who are both more liturgically rigid and less concerned with building Israel, integrating Russian speakers or keeping American Jews on board. This came about largely because the Zionist Orthodox movement had focused so heavily in recent years on settlement building in the West Bank and allowed control of religious issues to slip from its hands. Finally, American Jews, who are mostly politically liberal ? some 80 percent voted for President Obama ? have felt their attachment to Israel strained during its military operations in Lebanon and Gaza and the recent attack on a Turkish flotilla seeking to break Israel?s Gaza blockade. And since the conversion bill is being sponsored by Yisrael Beiteinu , the nationalist and mostly right-wing party of Foreign Minister Avigdor Lieberman, conditions were especially ripe for mistrust. ?There is increasing discomfort among American Jews with Israel,? commented Rabbi Donniel Hartman, president of Jerusalem?s Shalom Hartman Institute , which is devoted to exploring Jewish issues. ?This issue is a place where they can express the displeasure that they might not be willing to state on the flotilla and other political matters.? For that reason, some here, even among those sympathetic to the Reform and Conservative movements, like Rabbi Hartman, feel that the American reaction to the Rotem bill was overly aggressive. ?They overstated this one,? he said. Meanwhile, the Reform and Conservative movements believed that the Supreme Court here was looking favorably on their attempt to gain legitimacy for their conversions. A likely decision in their favor drove the rabbinate to push back through backing this legislation. Mr. Sharansky, the former Soviet dissident who once led a Russian immigrant political party here and who will head the conversion compromise search, said by telephone that intensive contacts over the past week had created increased understanding between the sides. He added that at a time when Israel?s legitimacy was increasingly under attack the Jewish people needed unity and that the legitimacy of all strains needed to be acknowledged. Most observers, however, see a looming confrontation. As David Horovitz, the editor of The Jerusalem Post, put it in his weekly column on Friday, ?What we are facing is an explosive global crisis over Jewish identity ? a huge, snowballing disaster that is ripping Israeli-Diaspora relations.?
