Germany’s Landesbank Hessen-Thueringen snubbed the European Union’s bank stress tests two days before the publication of results, refusing to give the European Banking Authority permission to publish all of its data.
The bank, known as Helaba, disputes the EBA’s measurements of Core Tier 1 capital, the factor by which banks are said to have passed or failed the tests, because they don’t include some instruments allowed by German regulators. The lender said it passed the exams with a capital ratio of 6.8 percent, counting contractual changes around state funds of 1.92 billion euros ($2.71 billion), not included in the EBA results.
German regulators had already been critical of the EBA. Bafin Chairman Jochen Sanio last month said the EBA lacks “clear, defined corporate-governance structures, which alone could guarantee process legitimacy.”
Helaba’s move “challenges the very validity of the tests” because the EBA “doesn’t have the authority to force anyone to participate” in the exams, James Babicz, head of risk at analytics company SAS U.K., said in a telephone interview.
To pass, the 91 European banks tested need a Core Tier 1 capital ratio above 5 percent. This year’s exams, which will be published on July 15, will include a review of how lenders would handle a 0.5 percent economic contraction in the euro area in 2011, a 15 percent drop in European equity markets as well as possible trading losses on sovereign debt.
The EBA’s evaluation of Helaba’s reserves “would lead to a halving of the core capital without legal grounds,” the Frankfurt-based bank said in its statement yesterday.
“It is incomprehensible that the EBA will exclude capital that for 10 years has been included in the balance sheet as fully liable and regulatory-approved capital,” Helaba said.
The London-based EBA’s definition of core tier 1 capital has been “consistently applied across the participating banks and conforms to the criteria agreed by its board of supervisors,” the regulator said in an e-mailed statement.
There is a “good chance that other landesbanken will follow” Helaba’s decision to restrict the amount of data released by the EBA as part of the publication of stress test results, Babicz said.
Germany’s central bank said Helaba is sufficiently capitalized. The German state of Hesse’s “public and binding” decision to apply non-voting capital, known as silent participations, in its results meant the bank is well capitalized, Sabine Lautenschlaeger, vice president of Deutsche Bundesbank, said yesterday.
Helaba’s situation is “fairly unique,” Sony Kapoor, managing director of policy group Re-Define Europe in London, said in an e-mailed statement. “Every time a bank accuses EBA of being too tough, the star of the nascent regulator rises.”