Germany favors the release of so-called stress tests of the ability of banks to withstand shocks, a government source said yesterday as eurozone leaders seek to calm rising tension in the sector.
EU leaders in Brussels were to discuss yesterday how best to publish the results of tests to determine how well equipped banks are to withstand a major event such as default by a key debtor, the source said.
Germany and other European countries have resisted pressure to release the results of tests done on major eurozone banks last year, arguing that markets could misinterpret the findings and turn against the banks.
A similar exercise in the US is nonetheless credited with having restored confidence in the banking sector.
On Wednesday, the Bank of Spain said it would release information on Spanish banks that have recently become the target of growing market speculation.
“The balance has now shifted from the disadvantages to the advantages of stress tests,” the German government source said.
European Central Bank executive board member Lorenzo Bini Smaghi said on Wednesday that harmonized bank stress tests — fresh ones are now being done on some 30 major eurozone banks — would be released for each eurozone member.
“Supervisors in Europe are stress testing the banks and those results will be made public within a couple of weeks, at the latest,” starting with Spain, he told CNBC television in New York.
Details on smaller banks would also be available in Spain, where regional savings banks known as cajas have requested about 11 billion euros (US$13.5 billion) from a state restructuring fund to carry out merger plans.
Bini Smaghi said the decision was taken owing to “the lack of confidence” in financial markets, adding that it had not been easy to coordinate the work of different banking sector supervisors.
“The problem is that in Europe there are 16 supervisors that have to agree among themselves and I think we have moved from inactivity to leading by example,” as Spanish authorities have done, he said.
If banks were found to have insufficient capital, they would either have to merge with other banks, as is happening in Spain, or raise more funds “within a given deadline,” he said.
“In some countries like Spain there is some capital being put aside by the government in case the bank doesn’t find it in the private markets,” he added.
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