Publications
Partners
Frankfurt - Europe is finally set for a transparent check-up of its banking sector to curb financial market tensions, including information on fragile regional lenders in Germany and Spain.
Central bankers in Frankfurt and Madrid have confirmed that the results of so-called stress tests will be published following initial resistance from critics wary of a possible negative market reaction.
In Brussels, EU leaders agreed to release the results of similar tests for other eurozone banks to show whether they could withstand exceptional economic or financial shocks, diplomats said on Thursday.
"We agreed that a stress test of the banks will be published at the latest end July," one said.
Spain and Germany had already decided to go public with analyses of their banks, including smaller institutions deemed most at risk.
"We see that markets are nervous and that trust between banks is lacking," a German finance ministry spokesperson explained. "More transparency might help stabilise the situation."
Investors fear some banks might be unable to cope if they suffered massive losses on government bonds and real-estate loans.
European Commission chief Jose Manuel Barroso urged EU leaders to act "on a bank-by-bank basis" to "lift unfounded suspicions" and address eventual "difficulties under the most adverse scenarios," an official said.
Stress tests
The results on more than 20 big cross-border eurozone banks are being coordinated in London by the Committee of European Banking Supervisors.
German central bank governor Axel Weber warned that if tests showed banks needed extra funding, governments must be prepared to give it rapidly.
"Any stress test only makes sense if it is accompanied by a corresponding commitment by the respective government to drive forward the process of recapitalisation and the guarantee of liquidity," Weber said in Frankfurt.
Germany is testing a broad cross-section of its banking sector and initial results would be available by mid-July, he said, adding that it "wouldn't be sensible" to exclude troubled state-owned Landesbanks.
In France, a source close to Economy Minister Christine Lagarde said tests showed "no particular cause for concern."
Critics warn that markets could misinterpret test findings and turn against some banks, although US tests done last year are said to have bolstered trust in the banking sector there and set the stage for financial market recovery.
The Bank of Spain was the first to say it would release data on Spanish banks, after they became the target of growing market speculation.
ECB executive board member Lorenzo Bini Smaghi, an Italian, said that showed "we have moved from inactivity to leading by example."
If banks did not have enough core capital they would either have to raise fresh funds or merge with peers, he added.
"There is some capital being put aside by the government in case the banks do not find it in the private markets," he said.
'A complex exercise'
Spain's banking system is laden with loans that went bad after the country's real-estate market collapsed, and regional savings banks have been frozen out of international interbank markets.
Analysts were divided on the idea of releasing stress test grades, however.
"It's a complex exercise, it's not really something that is easily digested by a wider audience," Barclays Capital economist Thorsten Polleit said.
But UniCredit chief economist Marco Annunziata said: "Greater confidence in Spain's financial system could in turn bolster market optimism on the country's ability to repair its public finances."
ING senior economist Carsten Brzeski saw two sides to the issue.
"If you have nothing to hide then just come out with the stress tests," he said.
But he also noted markets were not panicking as they did a few weeks ago, with Spain managing to place a large bond issue this week, and questioned whether EU governments should "always be hijacked by markets and always be pushed into this kind of ad-hoc reactive mode."
Brzeski suggested authorities focus on problems with weak regional lenders in Spain and Germany but "keep their cool and continue with the structural work."
- AFP
