EU plans regular bank stress-tests

ECOFIN council 30 sept 2010.jpg

The European Union will make health checks of banks a regular event and the results will be published in full, the bloc's presidency said yesterday (30 September).

In July, just seven European banks failed such a check-up and were ordered to raise their capital by a total of 3.5 billion euros ($4.75 billion), much less than expected, reinforcing concerns the long-awaited stress test was too soft. 

But policymakers say the tests carried out by the Committee of European Banking Supervisors (CEBS) on 91 banks in 20 countries helped calm investor concerns about a sector still being supported by governments because of the financial crisis.

"Of course there are maybe some lessons on the content of the stress test. It was a first experience," Didier Reynders, finance minister for EU president Belgium, told a news conference after EU finance ministers met in Brussels.

"The necessity to go further and to organise that on a regular basis and to publish the results is a very clear statement for all the participants," Reynders said.

The European Central Bank, which helped organise the July exercise, said much of the legwork would still be done by national authorities.

"It was a test of our own capacity to organise at the level of the 27, which was certainly remarkable," European Central Bank President Jean-Claude Trichet said.

A paper prepared for yesterday's meeting said the CEBS' stress test had proved an "important supervisory tool to assess the resilience of banks and should become an ordinary practice in the EU, to be repeated on a yearly basis." 

EU Economic and Monetary Affairs Commissioner Olli Rehn said the stress tests were important in restoring confidence in Europe's banking sector, but further harmonisation of the test methods and conduct was needed.

"We should have regular stress tests. The interval can be defined later on, based on our discussions. Secondly, the stress tests have to be conducted with full transparency to have full impact as it was last summer," Rehn said.

(EURACTIV with Reuters)

 

 While Europe was initially not too badly affected by the financial turmoil that began with the 2008 collapse of US investment bank, Lehman Brothers, the crisis stormed into the continent at the end of September 2008.

A number of EU countries were forced to apply emergency measures to salvage their banking institutions and prevent a collapse of the financial system, with the European Commission fast-tracked the approval of bank bailout plans to prevent confidence from plunging further.

Earlier this year, the EU conducted stress tests on 91 banks, of which only seven failed, meaning that their tier one capital ratio – measuring core capital against total assets – fell below a 6% margin.

The tests showed that the seven failures had moderate capital shortfalls – 3.5 billion - sparking fears that the tests were not rigorous enough.

Other Links

  • EU Council of Ministers:ECOFIN(30 September 2010)

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