For those of you who think times are more than a little tough at the moment, the news that there are still major fears about the strength of the European Banking System, is not really what you will want to hear.

However, this week sees the release of a major report involving the “stress-testing” on a range of European Banks to determine their health and, perhaps more importantly, whether they are in a position to cope if anything goes seriously wrong again. These “detailed” tests have been undertaken on 91 banks, including names such as Deutsche Bank and Commerzbank in Germany, HSBC and Barclays in the UK, as well as Societe Generale and BNP Paribas in France.

The worry is that if this is negative we could slip into a second credit crunch. The other worry, as some news has been leaking that certain lenders have walked through these tests, is that they have become a bit of a shambles and cannot be trusted. In other words, if no one believes the results, is this just as bad as a negative result?

Under this shadow, the Bank of England are trying to deal with some contradicting factors; on the one hand the recovery looks like it is petering out, the budgetary cuts are due to bite in the near future and they are even considering boosting their Quantitative Easing policy, on the other hand inflation is still proving sticky and one Monetary Policy Committee member, Andrew Sentance, voted for the second month running for an early hike in interest rates.

Economist Ray Barrell, of the National Institute of Economic and Social Research, told the Times that putting QE back onto the table indicated the MPC were worried about the results of this Stress Test report. He said, “we are sitting on the edge of a volcano and we won’t know until Friday whether it will erupt or not”.

It is sobering stuff, but without trying to be too pessimistic it does seem as if we may have already seen the best part of the year in the mortgage market.

However, too many people like to dwell on the negative, bad news sells don’t you know, and whilst we are all under no illusions that we are still not out of this crises, things may not actually be that bad and will begin to even out.

The reality is probably that the Stress Tests will not actually be too worrying and will have been done to ensure that most banks, but by no means all, pass through safely. So maybe a little rigged then, as my learned colleague Rob Gill says, “I can’t believe even the EU would be so daft as to order a series of tests which could spark a second, European orientated banking crises, cost billions upon billions or Euros to sort out and potentially tear apart the Euro zone.”

What is more, there is of course a positive side to falling house prices and more properties on the market meaning that more people may be tempted back to the market in due course. Mortgage rates are still low, lenders still ultimately need to lend and people still need to move and desire to own their own home.

What is more, people still have a mistrust of banks and there is an increasing demand for independent advice that is unlikely to diminish.

As with everything, sentiment is of paramount importance and if you choose to just concentrate on the negative then do not be surprised when negative things happen. It is much better to be aware of the issues; it is dangerous to be naive, but to concentrate on the positives.

Last word to Rob for another very valid point, “The big risk at the moment is the US talking themselves into a double dip, and they really are talking their way into it rather than there being any underlying causes.”

As individuals, as an industry, as an economy and as a country we should be careful not to do the same.

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