AFTER a week of Grand Nationals, it is sad to think that one of the world's oldest and most dangerous horse races – Il Palio di Siena – is in jeopardy.
The event is steeped in medieval tradition, typified by the ceremonial attendance of each horse and jockey inside their thronged local church for a blessing on the morning of the race. It pulls and tugs at deep-seated loyalties and ancient rivalries extending in significance well beyond the mere outcome of a simple horse race.
However, the threat to Il Palio's existence doesn't come from the animal rights movement who object because of the risk of injury in negotiating the tight bends of Siena's Piazza del Campo. Bizarrely, this 400-year-old sporting contest is another casualty of the banking crisis.
Banca Monte dei Paschi di Siena, the third largest bank in Italy, sponsors the event and despite having passed the 2011 European Banking Authority stress tests, now finds itself in financial trouble.
It is no longer able to provide the funding for Il Palio and is under investigation for covering up substantial losses by using bogus derivative contracts. Unfortunately it now appears that the Italian regulator, under former Governor Mario Draghi, spotted these "accounting irregularities" in 2010, prior to the stress tests and some two years before they were eventually disclosed.
A total of eight European banks, none of them Irish, failed the 2011 stress tests. You might have thought that Dexia, the large Franco/Belgian bank, would have been one of the eight on the EBA naughty list, having been in trouble in 2008 following the credit crunch.
But no, it passed with flying colours, rated as one of the safest banks in Europe. However, only three months after having outperformed in the EBA safety rankings, it ran up the white flag. The new government owners were forced to extend financial guarantees worth €90bn to rescue it for the second time.
Amazingly, that wasn't the end of it. A "third and final" bailout was agreed last November, when France and Belgium agreed to place a further €5.5bn of fresh capital into the bank. Fingers crossed it is third time lucky.
You might have thought that Bankia in Spain would have been on the 2011 "bad boys" list. Surprisingly, it passed in spite of the knowledge that Spanish banks would be severely hurt by the collapse of the decade-long housing boom.
The recently announced restructuring plan for Spain's largest ailing bank involves practically wiping out shareholders with junior bondholders losing about 30 per cent of their original investment. Many suffering these losses are small savers who have taken to the streets to protest, claiming they were misled into believing they were buying low-risk savings products, not risky bonds or shares.
Dutch Bank SNS Reaal passed the stress test with ease. In February of this year, Dutch finance minister Jeroen Dijsselbloem had to nationalise the state's fourth largest systemically important bank. The cause was heavy losses in real estate holdings, particularly in Spanish assets.
Most recently, we have heard the criticisms heaped on our Cypriot cousins for their failure to supervise the Cypriot banking system.
You might have thought that the Bank of Cyprus would have failed the 2011 stress tests in light of its obvious Russian roulette high-risk strategy. You would be wrong. It was in the pass category as well.
This time it was an over concentration in Greek government bonds that did the damage. This wasn't picked up in the stress tests because the formula used to calculate risks treated government bonds as risk-free. How were Cypriot savers supposed to second guess this state of affairs when even the prudential experts in the EBA couldn't spot it?
So what about the Irish banks? Whenever Irish Government ministers and officials answer questions about the anticipated losses from the deteriorating mortgage arrears crisis, they unfailingly revert to the same pre-prepared formula; further re-capitalisation of the Irish banks will not be necessary because they have passed the 2011 EBA stress tests.
Considering the experience of Monte dei Paschi, SNS Reaal, Dexia, Bankia and Bank of Cyprus, this may not be the ringing endorsement it at first appears.
What is clear is that the provisions against mortgage losses made by the Irish banks to date are unlikely to be remotely adequate. The predominance of short-term forbearance measures in an arrears problem of this scale is neither prudent nor is it sustainable. Eventually Irish banks will have to absorb their losses on the pernicious combination of trackers, buy to lets, long-term arrears, negative equity, interest only and disastrous late-cycle loans.
In the meantime, the jury is out in relation to the Central Bank's latest target-setting initiative, principally because of the inherent ease with which banks can pay lip service to the scheme without incurring any real consequence.
What makes the Government's laissez faire attitude to this situation all the more surprising is that, according to John Corrigan, chief executive of the NTMA, foreign investors still question the state of the Irish banks.
At a conference organised last month by the Irish Association of Pension Funds, he said the issue of whether or not Irish banks are financially strong enough to absorb mortgage write-downs is "the remaining piece in the puzzle".
In light of the Government's priority of sublimating every other policy initiative to the objective of reclaiming our independence by returning to the bond markets, you might have thought that some more pre-emptive action would have been taken by the Government to allay the rational fears of foreign investors.
In contrast, the Bank of England, in a move to get out ahead of the game, has decided that major UK banks need to raise a further stg£25bn in extra capital because of potential losses over the next three years relating to "high-risk" loans in the UK commercial property sector and vulnerable eurozone economies.
The UK regulator emphasised the new hands-on approach and insisted that the extra capital was needed "to ensure sufficient capacity to absorb losses and sustain lending".
What we can say for certain is that five years after the bursting of the credit bubble, Irish banks have managed to avoid any meaningful long- term resolution of the mortgage crisis, thanks in no small part to the gravity-defying "extend and pretend" policy indulged by the Central Bank and the extraordinarily low level of repossessions.
As and when those actual losses start to materialise (as they inevitably will), then using the 2011 stress tests as a benchmark for their capacity to absorb losses may not be the most reliable or prudent approach.
Stress tests are supposed to anticipate worsening situations, not deliberately ignore them. Even the recently leaked internal staff report prepared by the European Commission suggests that the increasing number of mortgages in default is now higher than that forecast by the stress test in March 2011 and conspicuously argues that there is a need for "new" robust stress tests to be conducted before Ireland exits the bailout programme.
Recent experience has taught us that the general public pays for failures in banking supervision. Just ask Spanish savers, or the people in the ATM queue in Nicosia.
When it comes to the protection of the consumer in the grand scheme of banking stress tests, then it would appear that the hopes of ordinary people are always destined to fall at Beecher's on the first circuit.
Shane Ross is on holidays.
Eugene McErlean is a director of the Citizens Information Board and is former head of AIB's internal audit unit