x Abu Dhabi, UAETuesday 25 July 2017

EU to stress-test its 25 biggest banks

Review by national banking supervisors aims to ease market worries that the sovereign debt crisis will deepen.

France's president, Nicolas Sarkozy, addresses the press after the summit in Brussels.
France's president, Nicolas Sarkozy, addresses the press after the summit in Brussels.

The EU will stress test its 25 biggest banks and its pledge at the summit in Brussels to publish the results have been welcomed by investors and analysts seeking more transparency to ward off concerns . The tests will be conducted by national supervisors under the management of the Committee of European Banking Supervisors (CEBS) and in the second stage they will extend to more banks than the initial 25, sources said yesterday.

A source said: "CEBS has been doing this for quite some time. These are agreed criteria with a macroeconomic stress scenario that has been agreed with the ECB [European Central Bank], simulating first a growth slowdown, and also simulating stress on sovereign holdings. "They are now working on phase two, which will extend the results to well beyond the 25 largest banks." The French president, Nicolas Sarkozy, said at the EU summit on Thursday that the studies will be done "institution by institution".

The German chancellor, Angela Merkel, said it was important to give "maximum transparency". Asked how the governments would react if the tests revealed shortcomings, she said the EU has "taken precautions", including a ?750 billion (Dh3.41 trillion) financial backstop. But some countries may struggle to force reluctant banks to disclose financial details they would prefer to keep secret. German law, for example, prohibits this.

Andrew Milligan, the head of global strategy at Standard Life Investments, said: "The results could be very helpful reassuring investors that the European financial system is sound. The devil will be in the detail." Mrs Merkel and Mr Sarkozy rebuffed concerns from executives that publishing the tests could undermine confidence in the banks unless governments promise aid.

The wider European stress tests will be published in the second half of July "at the latest", said Jean-Claude Trichet, the president of the ECB. The EU leaders also vowed to push for global taxes on banks and financial transactions, setting the stage for a conflict over worldwide regulation at next week's meeting of the Group of 20 (G20) developed and emerging economies. With Germany, Britain and France pledging to impose levies on their own banks and to clamp down on financial speculation, the EU called for global taxes that have run into opposition from G20 members including China and Canada.

Europe said it will put up a united front at the G20, which has refused to endorse a bank tax. * with Reuters and Bloomberg