EU banks outside euro zone likely to overcome stress test divide

Tue Nov 12, 2013 9:55am EST
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By Laura Noonan

LONDON (Reuters) - EU nations that lie outside the euro zone plan largely to fall in behind the European Central Bank when they check the health of their banks, helping them to avoid a "two tier" outcome in stress tests next year.

Many supervisors in this diverse group of 11 countries told Reuters they will align their reviews closely with the ECB's assessment of major banks within the currency bloc, a tactic that analysts say should dispel any suspicions that their national tests lack rigor.

In the coming year, the European Union will stage a series of exercises to test the ability of its lenders to withstand a future crisis without resorting to taxpayer-funded bailouts, including in the non-euro zone corners that stretch from Britain to Bulgaria.

These are billed as the most rigorous assessments the banks have ever had, designed to remove doubts about their health after botched EU stress tests in 2010 and 2011 which failed to reveal major problems at some lenders.

The ECB will conduct "asset quality reviews" (AQRs) of the euro zone's 128 largest lenders before it takes over supervising them from national authorities. The AQR will become those banks' starting point in stress tests which the European Banking Authority (EBA) will coordinate in all 28 EU countries, subjecting them to scenarios such as a stock market crash or abrupt change in interest rates.

These exercises risk claiming some non-euro zone banks as collateral damage if there is any perception among investors that results verified by the ECB carry more weight that those produced by supervisors in countries outside the euro zone.

But this prospect now looks remote in many of the 11 countries which are mostly in central and eastern Europe but also include Sweden and Denmark, as well as Britain.

A number of authorities said they are taking steps to mimic major parts of the ECB's exercise, and several said they might hire external consultants to validate their data.   Continued...

An illuminated euro sign is seen in front of the headquarters of the European Central Bank (ECB) in the late evening in Frankfurt January 8, 2013. REUTERS/Kai Pfaffenbach