ECB's Nouy says banks must show they can make profits

Fri Nov 28, 2014 7:24am EST
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By Huw Jones and Eva Taylor

LONDON (Reuters) - Euro zone banks that failed or scrapped through this year's health checks will have to demonstrate they can make sustainable profits and may need to sell off loss-making units, the European Central Bank's top banking supervisor said.

Daniele Nouy, who heads the ECB's banking supervisory arm, told Reuters on Friday that simply finding more capital to plug shortfalls uncovered by the stress test may not be enough.

"Partly because of the financial situation in Europe and partly because of the structure of the banking systems in Europe ... the sustainable profitability is probably the main challenge and the main risk for banks in the coming years," Nouy said.

"They have to establish sustainable profitability."

She added: "There are a number of banks that went through the comprehensive assessment, but might not go through next time."

From this month, the ECB became the direct supervisor for the single currency area's top 120 banks like Santander (SAN.MC: Quote), BNP Paribas (BNPP.PA: Quote) and Deutsche Bank (DBKGn.DE: Quote) with powers to force them to top up their capital buffers or make other changes to keep them safe and sound.

Nouy has already asked some of the banks who struggled in the stress test to resubmit their plans for reinforcing their capital buffers. The supervisor is now also taking into account a broader consideration of banks' business models, which marks a departure from their earlier narrow focus on capital levels.

"When we review the capital plans of the banks with a shortfall now it's totally about business model, it's the most important dilemma," she said.   Continued...

Daniele Nouy, chair of the Supervisory Board of the European Central Bank, speaks at a Thomson Reuters newsmaker event at Canary Wharf in London November 28, 2014. REUTERS/Neil Hall