European Union finance ministers meeting in Brussels have discussed a new round of much tougher bank stress tests which are to be conducted next spring alongside national tests.
Noting a general agreement to learn all the lessons from the bank stress tests that have already been carried out at an EU level, European Internal Market Commissioner Michel Barnier promised that the tests would be more credible.
He set out a number of guidelines for the 2011 stress tests, including full transparency about all the test results, examining sovereign risk and liquidity, uniform application, and when the results are published, a credible response from supervisors if restructuring is required.
The tests were initially announced for February, but will not be carried out until the spring with the results published by the summer.
Following the publication of last year’s results the stress tests carried out lost credibility when the Irish banks’ woes forced the country to call for foreign aid, even though the country’s two biggest banks had sailed through the tests.
European Economic and Monetary Affairs Commissioner Ollie Rehn said that the tests used in 2010 had been “solid” but had not been evenly applied in the member states.
According to the new guidelines, the new stress tests will look at the banks’ ability to drum up enough cash from the markets in times of crisis. The introduction of such measures is complicated by the fact that there are not yet any harmonised criteria at EU level for calculating capital ratios and liquidity ratios. New international banking rules, known as the Basel III rules, which the EU will be incorporating into its legislation, set out ratios but do not explain in any detail how they are to be calculated.
Measures concerning the holding of sovereign debt (bonds) are to be fine-tuned, looking at the option of testing bonds held in the banking book rather than solely those in the trading book.
Mr Barnier stated that he had not said that this was necessary, but it is part of the debate, along with the option of examining property bubble risks.
Last year Malta participated in the EU’s stress tests with Bank of Valletta doing very well.