Exclusive: ECB gets pragmatic to keep bank test deadlines in sight

Mon May 12, 2014 10:27am EDT
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By Laura Noonan

LONDON (Reuters) - The European Central Bank has quietly made a series of concessions to banks that will make it easier for them to meet the tight deadlines of a landmark review of their businesses, four sources familiar with the process told Reuters.

The sources said the ECB has dropped requests for some difficult-to-obtain details like VAT numbers of company borrowers, waived some interim deadlines and allowed banks to produce data on smaller numbers of loans in some circumstances.

The changes do not compromise the accuracy and thoroughness of the tests, the sources said, but they make it more likely that banks will meet the overall deadline to allow the review's results to be published in October.

This means there is less chance the ECB will lose credibility by failing to hit deadlines that have been described as ambitious from the off, but too much flexibility could be perceived negatively by investors who want the euro zone's banks held up to tough scrutiny.

"There is a danger that by asking for too much detail on loans, the ECB is unable to see the wood for the trees as they get overwhelmed by the density of the data, (but) credibility remains the key watchword on this review," said from Andrew Parry, London-based chief executive of fund manager Hermes Sourcecap.

If there is any hint that weaker banks may escape proper scrutiny, then the whole exercise will be undermined, he added.

The review, billed as the toughest banks have ever gone through, aims to encourage them to recognize losses on loans or investments that have gone bad, allowing them to regain investors' trust and freeing up capacity to grant new loans to help the euro zone's fragile economic recovery.

The ECB has insisted that there is no flexibility around key elements like obtaining independent valuations for collateral held against loans and using external models to challenge banks' predictions of loan losses.   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