European Banks May Face More Frequent Stress Tests
Commissioner for economic and monetary affairs Olli Rehn
Jock Fistick/Bloomberg
EU commissioner for economic and monetary affairs Olli Rehn said stress tests are “a very useful instrument of reinforcing confidence for transparency and sound and solid analysis.”
EU commissioner for economic and monetary affairs Olli Rehn said stress tests are “a very useful instrument of reinforcing confidence for transparency and sound and solid analysis.” Photographer: Jock Fistick/Bloomberg
Lenders in Europe may face more frequent stress tests to bolster confidence in the region’s banking industry, Europe’s top economy official said.
The European Union is considering at what “kind of interval” to repeat the bank stress-testing exercise that ended last month, Olli Rehn, the EU commissioner for economic and monetary affairs, said yesterday in a Bloomberg Television interview in New York.
“This is something I have to talk to the finance ministers about,” he said. Stress tests are “a very useful instrument of reinforcing confidence for transparency and sound and solid analysis,” said Rehn, who will meet with European finance chiefs in Brussels on Sept. 7.
EU regulators carry out yearly stress tests on the biggest lenders in the region. Last month 91 banks, accounting for 65 percent of Europe’s banking industry, were examined on their resilience in the event of a shrinking economy and a drop in government bond values.
Only Germany’s Hypo Real Estate Holding AG, Agricultural Bank of Greece SA and five Spanish savings banks lacked adequate reserves to maintain a Tier 1 capital ratio of at least 6 percent under the worst-case scenarios, according to results published on July 23.
While the July test results provided greater transparency about lenders’ holdings of sovereign debt, they were criticized for not being stringent enough. European banks were shown to need only 3.5 billion euros ($4.4 billion) of new capital, about a tenth of the lowest analyst estimate.
Potential Losses
The evaluations took into account potential losses only on government bonds the banks trade, rather than those they are holding until maturity. That ignored the majority of banks’ holdings of sovereign debt, analysts have said.
The “stress tests were certainly viewed as not credible,” Linda Yueh, an economist at Oxford University, told Bloomberg Television today. Nonetheless, they “opened up the balance sheets of these banks” and “that sort of transparency does reassure anyone who is worried about” the region’s banking industry.
To contact the reporters on this story: Ben Moshinsky in Brussels at bmoshinsky@bloomberg.net; Sara Eisen in New York at seisen@bloomberg.net.
To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net.
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