ECB supervisor promises to come clean on banks' health

Wed Nov 27, 2013 12:55pm EST
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By John O'Donnell

BRUSSELS (Reuters) - The euro zone's future bank supervisor on Wednesday promised a warts-and-all probe into the bloc's still fragile financial system, conceding that she and other supervisors had made mistakes in the past.

Seeking the backing of the European Parliament to become the supervisor for euro zone banks, Daniele Nouy listed sovereign debt among the banks' potentially riskiest assets as she laid down her ambitions for testing the health of lenders.

"What we will do is look at the most risky portfolios including sovereign risk," she said, commenting on planned health check of banks next year. "We have to deliver a tough and transparent exercise to the market."

Defending her role as French supervisor in the collapse of Franco-Belgian group Dexia, Nouy expressed regret over the "mistakes" she and her supervisory peers made in the financial crisis.

"Like many other supervisors, holding sovereign debt and assets linked to loans of local authorities, the risk wasn't flagged and clear to us," she said. "That was a mistake, no doubt about that. Perhaps we should have shown more authority."

The euro zone's debt crisis has been compounded by the dependence of many governments on banks buying their bonds, and by the banks' dependence on their governments picking up the bill if loans go bad.

The 63-year-old French technocrat is now tasked with leading one of the biggest clean ups yet of European banks, billed by many economists as the bloc's last chance to resolve a crisis that has dogged it for more than half a decade.

As head of the European Central Bank's supervisory body, she will first lead an examination that aims to come clean on bank problems, pinpointing loans such as mortgages that may never be repaid.   Continued...

France's Daniele Nouy, newly elected euro zone bank supervisor, addresses the European Parliament Monetary Affairs Committee, in Brussels November 27, 2013. REUTERS/Yves Herman