March 18, 2014 / 7:03 PM / 5 years ago

Bankers fear leaks from ECB health check

FRANKFURT (Reuters) - Euro zone bankers are worried that sensitive information will leak out before the official publication of the bloc’s review of bank balance sheets, triggering speculation and making investors uneasy.

Artists Justus Becker, aka COR (L) and "Bobby Borderline" work on their graffiti mural on a fence surrounding the construction site for the new head quarters of the European Central Bank (ECB) in Frankfurt, March 14, 2014. REUTERS/Kai Pfaffenbach

The European Central Bank is putting the euro zone’s 128 largest banks through a rigorous health check before it becomes their supervisor in November and plans to publish the results in one go in October to avoid market disruption.

Even if some banks were to issue positive news about the tests, that might put pressure on other banks to show how well they compared.

“We see this as a problem,” said Stefan Winter, head of UBS’s UBSN.VX German investment banking operations on Tuesday. “There are several questions, which haven’t been fully discussed yet.”

Michael Kemmer, head of the German BdB banking association, pointed earlier this year to a significant danger that some information would come out between now and October.

“Such leaks would be poisonous for the financial sector. They could unnerve investors and thereby run counter to the initial aim of the exercise,” he told Reuters at the time.

The ECB wants the review to help restore trust in the financial sector, by pushing banks to come to terms with non-performing loans and clean up their balance sheets so they are able to lend more again to companies and households.

Sources told Reuters last month that the ECB was in talks with the European Securities and Markets Authority (ESMA) to find a way to deal with leaks and rumors.

“All options are currently being assessed,” a central bank source said.

The ECB declined to comment.

The problem is that the health checks will be done in different stages. Right now, more than 1,000 auditors and independent specialist appraisers are trawling through trillions of euros of assets, checking whether banks have set aside enough capital to cover potential losses.

A stress test will follow in May and June to check how banks hold up under potentially damaging scenarios.

The auditors have been asked to keep test-related information to themselves, but banks might be able to draw conclusions from the data and additional information the auditors are requesting.

Some bank chiefs have suggested imposing a fine for leaking information, similar to what the ECB did when it launched the manual for the asset quality review (AQR) earlier in March.

Three sources with knowledge of the balance sheet tests told Reuters at the time that recipients of the manual faced fines of 100,000 euros for leaking information early.

However, Andrea Enria, chairman of the European Banking Authority (EBA) told Reuters earlier this month that if the AQR revealed material discrepancies, banks would have to go public right away.

Additional reporting by Andreas Framke; Writing by Eva Taylor; Editing by Ruth Pitchford

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