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EU Banks May Disclose Sovereign-Debt Holdings With Stress Tests

Jan Kees De Jager, the Netherlands's finance minister
Jan Kees De Jager, the Netherlands's finance minister, arrives for the European Union finance ministers meeting in Luxembourg. Photographer: Hannelore Foerster/Bloomberg

July 22 (Bloomberg) -- Europe’s largest banks may give breakdowns of their sovereign-debt holdings when they release stress-test results, according to a document from the Committee of European Banking Supervisors.

European regulators asked the region’s biggest banks to publish a list of each lender’s gross and net exposure to central and local governments in 30 countries in the region, including Greece, Spain, Ireland, Italy and Portugal, according to a confidential draft template obtained by Bloomberg News.

European Union regulators are examining the strength of 91 banks to determine if they can survive potential losses from both a recession and a decline in the value of their government-bond holdings. The tests are being used to reassure investors about the health of financial institutions from Germany’s WestLB AG and Bayerische Landesbank to Spanish savings banks as the debt crisis pummels the bonds of Greece, Spain and Portugal. Banks and regulators will release results of the tests tomorrow.

The “template for disclosure of sovereign exposures,” prepared by London-based CEBS, “will be used in individual disclosures by banks and/or supervisory authorities,” according to the draft.

Banks will be asked to provide details of whether they booked their sovereign-debt holdings in the banking or trading book, according to the template, which was dated July 15. The document will show debt holdings for the 27 EU members as well as Liechtenstein, Norway and Iceland.

Defaults Not Included

Under accounting rules, banks have to adjust the value of sovereign bonds held in the trading book according to changes in market prices, said Konrad Becker, a financial analyst at Merck Finck & Co. in Munich. For government debt held in the banking book, lenders must write down the value only if there is serious doubt about a state’s ability to repay its debt in full or make interest payments, he said. Banks currently hold most of their government bonds in the banking book, according to Becker.

The stress tests won’t include the possibility of sovereign defaults, Dutch Finance Minister Jan Kees de Jager said last week.

CEBS coordinates national banking authorities and makes policy recommendations to the European Union on regulation.

To contact the reporters on this story: Meera Louis in Brussels at; Jann Bettinga in Frankfurt at

To contact the editors responsible for this story: Frank Connelly at; James Hertling at

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