EU banks to plan stress tests: officials

13th May 2009, Comments 0 comments

Unlike US, the stress tests carried out in Europe will aim to identify risks that may threaten the broader financial sector.

Brussels – EU countries are to subject their biggest banks to so-called "stress tests" in coming months to see if there are any more nasty surprises lurking on their balance sheets, officials said Tuesday.

However, they insisted that, unlike recent US stress tests, the aim was not to identify which banks need more capital and how much, but rather the risks that may threaten the broader financial sector.

Washington published the results from stress tests of the shell-shocked US banking sector Friday, showing that 10 big US banks need a total of USD 74.6 billion (EUR 54.5 billion, CHF 52.1 billion) in extra capital.

EU officials said European tests would focus on big banks with wide-ranging businesses that operate across Europe's borders and are key links in the broader financial system.

"It's not about looking into specifics or defining further needs of capital for specific banks but rather it's about finding out if there is something we should worry about," one EU official said on condition of anonymity.

EU finance ministers agreed in principle to tests at a meeting in Brussels last week and officials are hammering out the details with the aim of presenting the results to ministers in September, officials said.

Committee of European Banking Supervisors spokeswoman Efstathia Bouli said the national supervisory authorities would subject banks to the tests "so as to increase the level of aggregate information among policy makers in assessing the European financial system's potential resilience to shocks."

"The idea is to have a sample of systemic, representative banks, but not all of the banks," another EU official said on condition of anonymity.

Although the financial crisis is rooted in the US housing market, European banks have suffered dearly from turmoil, especially since many had liabilities supported by less capital than some of their US counterparts.

As a result, many European countries rushed to bail out banks and guarantee their lending between them in the midst of a crisis of confidence in the sector in 2008.

However, EU governments have struggled to coordinate their support for struggling banks, with no pan-European authority really in charge of overseeing the sector.

Although European leaders have been urging banks for months to come clean about the true health of their balance sheets, concerns remain that toxic assets may still be lurking on their books.

In Paris, IMF Europe director Marek Belka urged European governments to carry out stress tests on banks, saying that "policy makers should shift to a more proactive approach".

"They need to subject financial institutions to rigorous stress tests and force them to recognise losses and recapitalise or resolve them where needed."

Despite the need for new capital at some US banks, the results from the stress tests in the United States last week brought mostly relief to investors, who had been fretting for months over the sector's health.

AFP / Expatica

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