Tagged: Olli Rehn

EU under Pressure to Spell out Stress Tests

Bloomberg | Jul 12, 2010 | 19:35 IST

The European Commission told government officials that failure to publish individual banks’ exposure to sovereign debt could damage investor confidence. “There is considerable opposition to the publication of individual exposures to sovereign debt,” the European Union’s executive arm said in a confidential letter dated July 9 that was obtained by Bloomberg News. “Stepping back” from planned publication of this information “would give the impression that we have something to hide.” EU regulators are examining the strength of 91 banks to determine if they can survive potential losses on sovereign-bond holdings. They are counting on the tests to reassure investors about the health of financial institutions from Germany’s WestLB AG and Bayerische Landesbank to Spanish savings banks as the debt crisis pummels the bonds of Greece, Spain and Portugal. EU finance officials are currently debating how much detail from the tests to disclose. The results are scheduled to be released on July 23. “We are increasingly worried to note an apparent weakening of the commitment to transparency,” the commission said in the letter to the EU’s Economic and Financial Committee, which comprises senior officials from member states, the commission and the European Central Bank. If the tests aren’t “credible and transparent,” there is a “high risk that it will disappoint the markets.”

‘Important Step’

The EFC prepares the agenda for monthly meetings of euro- region finance ministers, who are gathering in Brussels today to discuss the publication of the tests. German Finance Minister Wolfgang Schaeuble told reporters before the meeting that the tests will be an “important step” toward easing investors’ concerns about the strength of the region’s banks. The commission also said in the letter that regulators should publish data on banks’ Tier 1 capital ratio that excludes government aid. “Some national supervisors have suggested that banks’ Tier 1 ratios without government support should not be published,” it said. “We believe that these data should be published because it constitutes important information for the markets.”  

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