July 10, 2014 / 1:33 PM / 5 years ago

ECB keeps banks on tight leash for health check results: sources

FRANKFURT/LONDON (Reuters) - The European Central Bank wants to give banks just 48 hours to review the results of a balance sheet health check so it can guard against data leaks even though the banks would like more time.

The headquarters of the European Central Bank (ECB) is pictured prior to the bank's monthly news conference in Frankfurt July 3, 2014. REUTERS/Ralph Orlowski

The ECB is carrying out the most detailed ever review of the euro zone’s 128 largest banks before it becomes the region’s financial supervisor in November.

Its aim is to restore confidence in Europe’s banking sector that has traded at lower valuations than its U.S. counterpart since the financial crisis due to uncertainty about the health of European banks’ balance sheets.

The results of the eight-month exercise are due in October and the ECB is holding meetings in Frankfurt this week to tell bankers how they will be released to the banks and the markets.

The bank faces a delicate balancing act in trying to keep its work under wraps and avoid breaches of market disclosure rules, while not blind-siding banks with unforeseen capital demands that they could struggle to fulfil.

Two people familiar with the Frankfurt discussions told Reuters the ECB proposed giving banks 48 hours warning of their results ahead of the publication date in late October.”Banks can’t comprehend this highly complex ... process within 48 hours in a way that they can sign it off in good conscience,” one person familiar with the matter told Reuters.

The ECB said the 48-hour deadline was one element in an ongoing dialogue with the 128 banks it was reviewing.

“We will communicate with the banks directly concerning exact timelines for the disclosure of the final result of the Comprehensive Assessment closer to the end of the process,” a spokesman said.


Liane Buchholz, managing director of VOEB, which represents Germany’s public sector banks, said lenders should be given at least a week to study the results before they are published.

“Forty eight hours is by no means sufficient to check the data that is to be published and to correct any mistakes,” she said.

A spokesman for DSGV, which represents Germany’s savings banks, said lenders would need time to review their figures to prevent the publication of incorrect data, which could lead to significant damage.

The European Banking Federation (EBF), that represents banks across the region was more circumspect. “EBF supports banks being given time to see beforehand what will be published, even though 48 hours is a very short time to understand conclusions reached by ECB of this substantial data gathering and analysis exercise,” Robert Priester, Deputy Chief Executive for the European Banking Federation, said.

The ECB aims to publish figures for each bank including total assets, risk exposure and a widely used gauge of balance sheet muscle known as common equity tier one capital, one banker, who attended the meeting, said.

The ECB also wants to publish banks’ leverage ratios, a measure of their total assets to equity. This is something banks do not yet have to disclose or meet international targets for.

The leverage ratio rules, due to come in from 2018, act as a backstop to a bank’s core risk-weighted capital requirements, which aim to cushion against shocks. A 3 percent ratio means a bank needs capital equivalent to 3 percent of its total assets.

VOEB’s Bucholz said he was opposed to the publication of the leverage ratio because banks are only obliged to disclose it from 2015. “It is not a topic in the Asset Quality Review and (EBA/SSM) stress tests,” he said.

But Jon Peace, head of European banks’ research at Nomura, said the disclosure of the leverage ratio was unlikely to be problematic for major banks.

“Most listed banks in the sector have disclosed the ... leverage ratio under pressure from investors already,” he said.

Peace said assuming banks were able to replace some old debt with debt that is compliant with new capital rules, known as Basel III, most retail banks would be far enough above the 3 percent minimum that it would a surprise if a stressed leverage ratio was a concern.

The European Banking Authority, which carried out previous rounds of stress tests on the EU’s largest banks and is working with the ECB on this year’s, could not say immediately how much notice banks were given of the results of their last stress tests in 2011.

Irish banks had just 24 hours notice of the results in a 2011 test that forced them to raise 24 billion euros, a source familiar with the situation said.

The disclosure timetables for the ECB’s review have not yet been finalised and this issue will have to be agreed with Europe’s markets watchdog the European Securities and Markets Authority, a source familiar with the matter told Reuters.

Banks have made extensive preparations ahead of the tests, including raising more than 100 billion euros ($136 billion) in the nine months to April, shedding assets and writing off bad debts.

Additional reporting by Andreas Framke and Arno Schuetze in Frankfurt; Editing by Hugh Lawson and Jane Merriman

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