Brussels, 10/01/2010 (Agence Europe) - In a commentary in the Financial Times last week, UK Chancellor of the Exchequer George Osborne said: “Europe cannot repeat the same mistake again. It is now clear the new bank stress tests must be much tougher. They should cover a three-year period and look at liquidity as well as core Tier 1 capital. We should look at ways of strengthening the credibility of these tests, including validation by bodies such as the International Monetary Fund.” The credibility of the most recent batch of stress tests at EU level has been called into question by the collapse of Irish banks that managed to sail through the stress tests before putting the Irish government in the situation of having to call for foreign aid.
George Osborne added: “For the longer term, we need to strengthen Europe's banks so that they, and not taxpayers, pick up the bill for future crises. Basel III contributes to this in several ways.” Concerned to defend the interests of the City of London, he described the current focus on short-selling as an “unnecessary distraction”, noting: “Restrictions on short-selling in the sovereign debt market have no basis in evidence and if agreed in their current form will only hamper liquidity and force interest rates even higher.” In its draft regulation on short-selling, the European Commission suggests restrictions on naked short-selling of securities, with the seller having at least to have made prior agreement with a third party to isolate and reserve the securities in order for them to be supplied at payment date. The European Parliament's rapporteur on the issue, French Green MEP Pascal Canfin, goes further, wanting all short-selling to be subject to a prior borrowing of the securities or an agreement guaranteeing such a loan (see EUROPE 10268). (M.B./transl.fl)