"EU Bank Regulators Plan Stress Tests to Examine Risks (Update2)
By John Rega
May 12 (Bloomberg) -- European Union bank regulators will conduct confidential stress tests by September, stepping up scrutiny of risks after lenders absorbed more than $1 trillion of losses and writedowns in the global financial crisis.
Regulators in the 27 EU countries will report overall data, not results for individual banks, to finance ministers and the EU’s executive arm, said Efstathia Bouli, a spokeswoman for the Committee of European Banking Supervisors in London. They don’t plan to publish the results.
The program, the second such review run by CEBS, examines sources of risks across financial markets, after EU states have pumped almost 3 They don’t plan to publish the results00 billion euros ($411 billion) of capital into lenders and offered 2.5 trillion euros in guarantees to help weather the crisis. The tests won’t assess banks’ capital needs, in contrast to the U.S. program completed last week.
“They don’t want to spook people by reporting big holes in the banking system, if that’s what they find,” Dominic Bryant, an economist at BNP Paribas in London, said in a telephone interview. Any such finding would “put pressure on banks to shore up their finances and be less risky in the future.”
After the crisis rippled through U.S. and U.K. banks, lenders in continental Europe, such as in Spain, are likely to make losses this year as their domestic economies contract, according to Bryant.
Among EU banks, losses and writedowns from the crisis have hit hardest in Britain, led by HSBC Holdings Plc and Royal Bank of Scotland Group Plc, according to Bloomberg data.
U.S. regulators found that 10 financial companies led by Bank of America Corp. need to raise a total of $74.6 billion of capital, in results made public on May 8. Releasing the findings helped calm investors, said U.S. Comptroller of the Currency John Dugan, who oversees national banks, said today at a conference in Washington.
The tests are “an assessment of the European financial system, to test its resilience to shocks and to contribute to best practices,” Bouli at the CEBS said in a telephone interview. They are part of a “regular risk assessment” mandated by the EU’s executive arm, the European Commission.
The CEBS designed a “common scenario,” which won’t be disclosed, to see how banks would perform in such an environment, according to Bouli.
Kirsty Clay, a spokeswoman for the U.K.’s regulator, the Financial Services Authority, declined to comment immediately.
Policy makers in Europe “need to subject financial institutions to rigorous stress tests,” Marek Belka, director of the International Monetary Fund’s European department, told journalists in Paris today. “Impaired assets need to be isolated from the rest of the financial sector.”