Draghi: ECB Won’t Hesitate to Fail Banks

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Oct. 23 (Bloomberg) –- European Central Bank President Mario Draghi discusses stress tests for banks and the ECB’s role as banking supervisor. He speaks with Francine Lacqua on Bloomberg Television's "Market Makers." (Source: Bloomberg)

You think these tests will be more credible and to banks need to fail to make the more credible?

This is credible because the ultimate purpose of it is to restore or strengthen private sector confidence in the soundness of the banks and quality of the balance sheet.

Ultimately that is the objective, private sector money to be put in the banking industry.

To get to this, and here i come to your question about credibility, the test and exercise has to be transparent.

That is the primary objective.

That is why it has been designed in a way that there is a plurality of act or's all playing together.

You have the ecb.

You have the national supervisors.

You have the other national supervisors.

There would be peer pressure.

Then you have private sector parties.

Both advising the ecb and advising the different national authorities.

Also, constant medication will have to be scheduled at regular times.

Constant communication about our undertakings, how it is proceeding.

Finally the coverage will be very extensive.

The threshold that has been chosen as ambitious.

That is why i think it is really a credible exercise.

To make it current -- more credible, do banks need to fail?

Should stress tests be compatible with the default?

The stress test should be the last part of the exercise?

Very premature to say anything about them.

If things have to fail.

No question about that.

Let's not forget.

The council is an explicit commitment to having -- have in place proper backstops by the time the exercise is kerry -- carried out.

We have a commitment of the highest level.

I have no doubt bank stocks will be there.

Does not mean they will have to be used.

First and foremost, private money that needs to be used if it is convenient for the private sector to invest in the banking industry.

How much will lending spur your policy at the ecb?

Deleveraging has taken place quite extensively in for quite a long time.

If the credit flows are still weak and subdued, -- also, many things have been done.

Europe but something like five percent of gdp into the banking industry.

Not very much different in the united states but still very significant.

Even at this present time and many member countries supervisors are actually undertaking a very convincing action of increasing provisions, asking banks to proceed with recapitalization.

A sub central amount of capital being raised.

We are not starting from scratch, it the beginning of the new way of doing things.

Facts bottom line, mario draghi

This text has been automatically generated. It may not be 100% accurate.

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