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Why of course they did….

As part of the tests, 91 of Europe’s largest banks were required to reveal how much government debt from European countries they held on their balance sheets. Regulators said the figures showed banks’ total holdings of that debt as of March 31.

But……

An examination of the banks’ disclosures indicates that some banks didn’t provide as comprehensive a picture of their government-debt holdings as regulators claimed. Some banks excluded certain bonds, and many reduced the sums to account for "short" positions they heldfacts that neither regulators nor most banks disclosed when the test results were published in late July.

"Didn’t provide as comprehensive a picture … as regulators claimed" = they lied.

Of course the so-called "regulators" didn’t regulate, as if they had they would have called these people out on this, and forced them to provide accurate disclosures.

But that didn’t happen.

How much "understatement" was involved here?  Oh, we have a decent guess….

BIS data from March 31 indicates that French banks were holding about 20 billion of Greek sovereign debt and 35 billion of Spanish sovereign debt. In the stress tests, four French banks, which represent nearly 80% of the assets in France’s banking system, reported holding a total of 11.6 billion of Greek government debt and 6.6 billion of Spanish debt.

So the European banks may have reported about one half to one fifth of the actual amounts held?

This morning we’ve seen some selling over in Europe which Bloomberg attributes to:

Banks still face problems in regards to their capital ratios, said Michael Koehler, head of strategy at Landesbank Baden-Wuerttemberg in Mainz, Germany. Investors will keep worrying about a possible double dip in the next few weeks, he said, referring to a renewed recession.

Uh huh.

How about this?

Investors are starting to wake up to the fact that the government lied about sovereign debt exposure, and now with Greece’s spreads widening and concern about Ireland, they have every reason to be wide awake – all night.

Psst: Listen to what is being said (quietly) in certain circles….. smell smoke yet?