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Next round of European bank stress tests in 2011

Text by News Wires

Latest update : 2010-11-25

The EU Commission has announced that the next round of banking stress tests will be held in Spring 2011. This time they are expected to be tougher as the banking crisis in Ireland occurred after the first tests and none of the Irish banks failed it.

REUTERS - National banking watchdogs are resisting a push by the European Commission to widen the scope of next year's financial health check for banks to include liquidity levels, a European Union source said on Thursday.

The Committee of European Banking Supervisors (CEBS), the EU's executive European Commission and the European Central Bank cooperated on this year's stress testing of 91 banks, which saw only seven fail in July.

None was in Ireland, which this week applied for a huge bailout from the EU and IMF to shore up its banks, sparking calls for a tougher test next time round and raising fresh concerns about the financial status of banks in other countries with high debt levels.

One analyst said the Irish crisis had turned this year's tests into an irrelevance.

"None of the Irish banks failed it. On that basis, investors are reluctant to trust claims that Portugal's and Spain's banks are as 'different' as politicians want us to believe," Societe Generale strategists wrote on Wednesday.

"The European Commission is putting pressure on CEBS to include bank liquidity in the next series of stress tests... but a majority of national supervisors disagree and are blocking it," an EU source said.

This year's stress test looked at how capital levels would fare under different scenarios with exposures to sovereign debt also included.

Analysts say liquidity is also key as banks like Northern Rock in Britain had to be rescued after its funding dried up as the credit crunch unfolded from mid-2007.

The next test will be conducted between February and June and be more demanding, the EU source added.

Extra criteria being discussed for inclusion are exposure to the real estate market -- whose collapse in Ireland scuppered the banks -- and a tougher version of exposures to falling government bonds.

A spokeswoman for EU Internal Market Commissioner Michel Barnier confirmed the stress tests will be done annually.

"We are now working with CEBS on the methodology for the tests that will be conducted next year with the timetable now being put together," the spokeswoman said.

The new European Banking Authority, a more powerful body that replaces CEBS in January, will be responsible for the stress test, she added.

The global Basel III agreement on tougher bank capital and liquidity standards endorsed by world leaders this month delayed the mandatory liquidity rules by several years after fierce protests by banks who said they needed more time to comply.

Date created : 2010-11-25