ECB Bank Review Needn’t Find Big Hole to Be Credible, Buti Says

The European Central Bank’s review of euro-area lenders, comprising an asset-quality review and a stress test, needn’t uncover large capital shortfalls at lenders to be credible, said Marco Buti, head of the European Commission’s economics department.

“I would warn against something, which is, the temptation will be that unless the AQR and the stress tests find a big hole, then that’s not credible,” Buti said at a conference in London today. “I think we’re not in that phase any longer.”

Buti noted that in the past year, “with the market conditions being more favorable,” banks have “strengthened their balance sheets” in advance of the ECB publishing the results of its assessment.

“Look at the latest data published by the ECB,” Buti said. “You’ve got 100 billion increase in the balance sheet in the past two or three quarters, and interestingly at the top of the list there it’s Italy, it’s Spain, third is Germany, fourth is Greece.”

Buti said “what is happening in terms of the process, the transparency, the information about what the banks are doing should comfort the markets and move it away from the perception that unless there are huge failures at the end of the day the test is not credible.”

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