Watchdog says euro bank failures needed to make health check credible: FT

Mon Feb 10, 2014 6:25am EST
 
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FRANKFURT/LINKOPING, Sweden (Reuters) - Some banks need to fail a sector-wide review of their financial health in order to make the exercise credible, the head of the euro zone's new banking supervisor told the Financial Times.

As part of a broad push for closer integration of Europe's banks to avert future crises, the Single Supervisory Mechanism (SSM) will monitor the bloc's largest lenders from November under the auspices of the European Central Bank.

Before then, the SSM is running the rule over the quality of the assets on the balance sheets of the bloc's 128 biggest banks.

That will run in parallel with broader stress tests of the whole banking sector under the control of Europe's regulator, the European Banking Authority (EBA).

ECB President Mario Draghi said last year there needed to be bank failures to make the battery of tests credible, comments SSM head Daniele Nouy underlined in an interview published on Monday.

"It seems precisely what markets expect from such an exercise; so, yes, probably that's the case," she told the FT.

"I do not have any idea of how many banks have to fail. What I know is that we want to have the highest level of quality. ... A failure of a bank may happen."

Previous EBA stress tests in 2009, 2010 and 2011 were widely criticized for not being rigorous enough. Among others, they gave clean bills of health to the banking sector in Ireland, which then had to ask for an international bailout.

Combining "bad banks with good banks" was not a solution, Nouy added, saying that it needed to be accepted that some banks had no future.   Continued...

 
The emergency exit sign of a restaurant is seen next to the construction site of the new European Central Bank (ECB) headquarters in Frankfurt, December 3, 2013. REUTERS/Kai Pfaffenbach