IN THEIR GENETIC CODE

What a difference a day makes.

Yesterday much of the financial crowd was agog over the European Central Bank's report on stress testing 130 EU banks. After the initial news bank shares rallied only later to give most of those gains back.

At closer inspection investors apparently pulled their yin side and exercised their yang sentiments as the Euro Stoxx Bank Index closed down 1.7 percent for the day.

Twenty five of the 130 banks tested failed, most likely a soft number to keep the report as positive as possible and buoy investor confidence. It not an original tactic.

But what about, as the saying goes, the morning after? Well, according to today's Financial Times, "...bankers and analysts cast doubt on claims that the (stress tests) exercise would open the floodgates" of new lending.

"We are here to lend, but there is very little demand," one European banker noted. "This is the problem. Loans are a lagging indicator. People borrow after the economy turns around."

The article then quoted  ECB Vice President Victor Constancio who on Sunday said: The report would "guarantee that going forward, the economic recovery will not be hampered by credit supply restrictions."

Now we know you're smart enough to detect a contrast of opinions here. But again, according to the Times, though"the ECB health check was likely to reduce the European banking sector's 11 per cent implied cost of capital by 2016," the sector was hardly something to breakout the sweet-tasting drinks over.

Quoting a JP Morgan Chase analysts: "However, the sector is not of the woods yet, in our view. We expect 0.5 per cent lending growth for our banking universe in 2015 as banks continue to rebuild capital rather than lend in an uncertain regulatory environment."

What this should tell you is in the regulators' zeal to do good they create consequences they never think entirely through. It's in their genetic code.