Credibility meets compromise in Europe's bank stress test

Mon Oct 20, 2014 1:10am EDT
 
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By Laura Noonan

LONDON (Reuters) - When Europe announced its latest health check of top banks early last year it promised a "comprehensive assessment" of how well prepared they were to withstand another financial crisis.

In practice, a spirit of comprehensive compromise has been just as important. 

A series of Reuters interviews with officials, bankers and others involved in the European Central Bank's financial inspection of the euro zone's biggest banks shows that in the seven months since it began, the ECB has had to shoot down countless pleas from banks and national supervisors for special treatment.

At the same time, according to sources who spoke on condition of anonymity, supervisors have revised the way they value assets and banks have failed to provide all the data demanded - multiple compromises that could cumulatively threaten the tests' reputation as tough and consistent.

The ECB, which takes over as supervisor for the region's top banks on Nov. 4, declined to comment in detail on the issues raised but insisted the exercise was robust and thorough.

It will announce on Oct. 26 which of Europe's 130 biggest banks have valued their assets properly and which have not, as well as whether banks need more capital to withstand another economic crash. Anticipation of the results is already affecting bank shares, with Italy's Monte dei Paschi falling to an all time low last week amid fears it would be forced to raise more cash.

"This health check...is unprecedented in terms of scale, rigor, severity and transparency," a spokeswoman said.

"It provides in-depth information on the condition of the largest banks in 19 countries and aims to strengthen banks’ balance sheets by identifying problems, build confidence and enhance investors’ trust."   Continued...

 
The headquarters of the European Central Bank (ECB) are pictured in Frankfurt June 6, 2013. The European Central Bank held its main interest rate at a record low of 0.50 percent on Thursday.   REUTERS/Ralph Orlowski