EU vows transparency in bank stress tests

13th July 2010, Comments 0 comments

EU finance ministers scrambled on Tuesday to ease market concerns over the health of European banks, vowing that results of tests on their ability to survive a new economic crisis would be transparent.

European officials hope results of tests on 91 banks accounting for 65 percent of the European banking system will reassure investors worried that some lenders may have hidden the extent of their exposure to bad debt.

Belgian Finance Minister Didier Reynders, whose country holds the rotating EU presidency, said his counterparts had agreed at a meeting in Brussels to coordinate the July 23 release of the test results.

"The desire is to do it in the most transparent way as possible, including by presenting the exposure of different institutions to sovereign debt," he told a news conference.

"The objective is to have a presentation (of test results) that gives the greatest guarantees of credibility to the institutions," he said.

British finance minister George Osborne said it was also crucial for EU states to have "credible plans" ready to assist banks in case some of them fail the tests and need fresh funds to bolster their balance sheets.

"I'm not suggesting that any institutions will necessarily look vulnerable but if any do, then we need to be able to stand by them," Osborne said.

The health of the European banking sector has come under sharp focus from investors worried that they might have been hit hard by Europe's sovereign debt crisis.

Markets want full disclosure of the results and finance ministers have denied that there has been any desire to craft the tests in ways that would ensure positive scores for the banks.

"I made the point as did others that, obviously, credibility is central in this exercise and we needed open, transparent stress tests that commanded the support of the markets," Osborne said.

Some economists have warned that the tests would show that some European banks need fresh capital.

EU Economic Affairs Commissioner Olli Rehn said he was confident that the European banking system was "strong and resilient."

But Rehn added that governments "should have national funds for recapitalisation or national guarantees for recapitalisation" in case the tests turn out negative.

Luxembourg Finance Minister Luc Frieden said state intervention to help banks would be a last resort.

"It is first up to the banks themselves to see how they can boost their funds," Frieden said.

The debt crisis forced European governments to bail out Greece and set up a 750-billion-euro (950-billion-dollar) loan package with the International Monetary Fund to help any other state that may need the help.

Eurozone finance ministers meanwhile pressed Slovakia to stop blocking activation of the financial safety net.

Sovakia wants to renegotiate its share of the package and Finance Minister Ivan Miklos said he was hopeful his government would make a decision on Wednesday.

The finance ministers also moved forward in efforts to set up pan-European watchdogs for the financial industry after easing British fears over the powers to be entrusted to the new agencies.

Last week, the EU parliament postponed until September a vote on the supervisory bodies, to give negotiators more time to reach a deal.

The finance ministers entrusted Belgium with a new mandate to negotiate with the European parliament in the hope of reaching a deal and activating the agencies, which will oversee banks, insurers and markets, in early 2011.

Britain, home to one of the world's biggest financial centres in London, has insisted that the decisions of the European agencies should never interfere with a country's fiscal sovereignty.

"We made considerable progress on the whole issue of supervision," Osborne said. "We absolutely maintained the importance of decisions not impinging on the fiscal sovereignty of member states."

© 2010 AFP

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