Banks on both sides of the Atlantic must be better prepared for hard times, the head of the European Central Bank said on Tuesday in the midst of renewed concerns about the health of Europe’s financial houses.
Stressing the need for a “more solid” and “more resilient” banking sector, Jean-Claude Trichet told US television station CNBC there was a need for capital to be “reinforced.”
His comments, recorded over the weekend, were broadcast amid fears about the rigidity of recent European bank “stress tests” dominated global stock markets.
Market sentiment was ruffled by a report in the Wall Street Journal that “stress tests” carried out in July on European banks to assess their solvency “minimized their debt risks” and “understated some lenders’ holdings on potentially risky government debt.”
“An examination of the banks’ disclosures indicates that some banks didn’t provide as comprehensive a picture of their government-debt holdings as regulators claimed,” the paper said, citing its own analysis.
That spooked stock markets, with the Dow Jones Industrial Average finishing down 107 points or just over 1 percent for the day.
In London, the FTSE 100 index shed over half a percentage point, while in Paris the CAC 40 fell 1.1 percent. The Frankfurt DAX lost 0.6 percent and ended the day at 6,117.89 points.
The EU’s financial services chief called yesterday for so-called “stress tests” on banks to be carried out on a regular basis, to judge their resilience in the event of another crisis.
“I am completely of the opinion that in future, we need to conduct stress tests regularly,” EU Commissioner Michel Barnier told the German business daily Handelsblatt in an interview.
So far, Europe has conducted just one “stress test” in July, which seven of the 91 banks failed.
German state-owned lender Hypo Real Estate, Greece’s ATEBank and five regional savings banks in Spain failed the key test of capital strength conducted by the Committee of European Banking Supervisors (CEBS).
“We are going to need more tests. The tests this year helped to create transparency and settle the markets,” Barnier said.
The EU official also dismissed claims that authorities were saddling banks with too much regulation.
“Bankers behaved irresponsibly, immorally and unethically,” he said.
Meanwhile, National Bank of Greece, a leading Greek bank, has announced it will raise 2.8 billion euros (US$3.6 billion) with a share issue and by selling part of its holding in Turkish subsidiary Finansbank.
NBG was one of five Greek lenders to pass EU-wide stress tests with varying success in July, although a sixth bank, ATEbank, failed to make the grade.
The government, fighting to overcome a national debt crisis that shook the eurozone earlier this year, has repeatedly urged the Greek banking sector to consolidate in recent months to help sustain the recession-hit economy.
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