Brussels, 11/04/2011 (Agence Europe) - EU Economic and Monetary Affairs Commissioner Olli Rehn has urged the member states to prepare to take action, if required, to help struggling banks which might fail the EU stress tests. At the ECOFIN Council on the outskirts of Budapest on Friday 8 April, Rehn said there must be no doubts about the ability of member states to deal with vulnerabilities shown up by the stress tests. He urged the member states to prepare funds and national plans to bail out and restructure banks where necessary, saying that the like must be set up before the stress test results are published and must comply with EU state aid rules.
On Saturday, Hungary's finance minister, György Matolcsy, said that strict stress tests were needed, quoting the International Monetary Fund's second-from-the-top, John Lipsky of the United States, that any weaknesses in the European banking system would be dealt with quickly and transparently by restructuring plans. The president of the European Central Bank, Jean-Claude Trichet, said the EU27 needed very robust tests and had to be ready to do whatever was required.
On the same day, the European Banking Authority (EBA) published fine-tuned criteria to be used for the stress tests for 90 European banks, representing 65% of banking assets in the EU and at least 50% of the banking assets in any country. Banks will have to demonstrate that they have a core Tier-1 capital ratio of 5% for any serious economic turbulence. Although this is not a legal requirement, the banks that fail this criterion or which show weaknesses will have to agree with their national supervisor on appropriate corrective measures, explains the EBA in a press release. Rehn said that the 5% core Tier-1 capital requirement was extremely tough and realistic and would unveil the strong and weak banks in the European banking system.
EBA scenarios and criteria for the 2011 stress tests are tougher than in 2010, but have come under criticism (see EUROPE 10340). Some investors point out that supervisors reject the idea of restructuring the sovereign debt of a eurozone country although are already preparing for the eventuality of serious losses on bond and gilt holdings, particularly Greek bonds. Germany believes the own requirements criteria are too restrictive because they do not cover capital used by Germany's regional banks, some of which might therefore fail the stress tests. (M.B./transl.fl)