ECB to reveal strategy for bank health checks in first-quarter

Mon Feb 3, 2014 8:22am EST
 
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By Eva Taylor and Jonathan Gould

FRANKFURT (Reuters) - The European Central Bank kept the euro zone's top lenders on tenterhooks as it promised to reveal the strategy for its unprecedented review of bank balance sheets by the end of March, giving only scant detail on Monday.

The ECB's asset quality review, or AQR, is part of a broader examination that also includes a stress test to see how banks hold up under shock scenarios, to avoid nasty surprises once it starts supervising them from November.

The exercise aims to encourage banks to recognize losses on loans or investments that have soured over time, allowing them to regain investors' trust and free up capacity to grant new loans to help along the euro zone's fragile economic recovery.

"We believe very much that recovery in 2015 will benefit from this exercise," Constancio told reporters at a news conference.

Confidence in the sector remains fragile despite more than 1 trillion euros ($1.4 trillion) of state support since the global financial crisis and the euro zone debt crisis underlined the risky relationship between overindebted governments and the banks who buy many of their sovereign bonds.

The EU's latest health checks are intended to settle any lingering doubts over its finances.

On Friday, the European Banking Authority (EBA) set out parameters for the stress tests and the ECB said it would apply them as well, aiming to give banks the stress test scenarios by the end of April.

Euro zone banks will get some time to meet the capital shortfalls highlighted by the scenarios, but the gaps from the baseline scenario in which banks must have a core capital ratio above 8 percent need to be addressed right away.   Continued...

 
A pigeon flies next to the construction site of the new European Central Bank (ECB) headquarters in Frankfurt, December 3, 2013. REUTERS/Kai Pfaffenbach