ECB’s Honohan Says European Stress Tests to Restore Confidence

European Central Bank council member Patrick Honohan said stress tests on banks will help restore investor confidence in the euro region’s financial system.

The tests may “move things forward and cool concerns about the banking system in Europe,” Honohan, who is also head of Ireland’s central bank, said at a press conference in Dublin today. In Ireland, “banks will meet the capital requirements set out by us, which we believe are sufficient to withstand future stress scenarios,” he said.

European Union regulators are examining the strength of the region’s banks as they seek to reassure investors about the institutions’ resilience to potential losses after the debt crisis pushed up borrowing costs from Greece to Ireland. The stress tests cover 91 banks, representing 65 percent of the European industry. The results are scheduled for partial publication on July 23.

The Irish central bank is carrying out additional stress tests on Allied Irish Banks Plc and Bank of Ireland Plc as part of the European assessment, Honohan said. While earlier stress tests conducted among Irish lenders on loan losses exceeded European measures, they have since been extended to “reflect events in the sovereign-debt markets,” he said.

“The new requirements we are imposing, along with some other measures, including the recent extension of the guarantee of banks’ liabilities, place our banks in a stronger position to start lending again and to support economic recovery,” he said.

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