Brussels, 11/05/2011 (Agence Europe) - On Tuesday 10 May MEPs on the European Parliament's economic and monetary affairs committee criticised the stress tests currently being carried out in the European Union for failure to cover the eventuality of a eurozone country defaulting on its debt.
In a question to Michel Barnier, EU Internal Market Commissioner, Corien Wortmann-Kool (EPP, the Netherlands) asked whether the financial sector in Europe would be able to cope with storms in the future. She set out her party's concerns about lack of credibility of the 2011 stress tests, urging the European Commission to explain what measures had been taken to ensure the mistakes of the 2010 stress tests were not repeated (see EUROPE 10356). The EPP wants the European Banking Authority (EBA) to ensure the same tests apply to all banks in all member states, she explained. The 2010 stress tests lost credibility because two Irish banks, which sailed through the tests, later had to be bailed out, which in turn forced Ireland to go cap in hand for international aid. Calling for robust, transparent stress tests, British Liberal Sharon Bowles suggested that Europe should learn from the United States and demand the publication, two years after the event, of the amount of cash printed by central banks to bail out the banks. She asked why the scale of exposure to sovereign debt should be kept secret when people had a good idea of the real situation, adding that there was no excuse for not analysing banking books because that's where banks keep toxic assets and other assets that have fallen in value.
Exposure to sovereign debt. Barnier said far more information was needed about exposure to sovereign debt, pointing out that the EBA stress tests examined the impact of huge crisis in the form of variations in debt maturity and the cost of paying it back but did not cover a country defaulting on its debt and would not have an impact on sovereign debt held on the trading book. He said the reason for this was that the scenario under examination had to be plausible and following the creation of European bailout funds (the EFSF and EFSM), the European Commission and the EBA both felt it would be far more useful to ensure full transparency about exposure to sovereign debt in bank trading books and trading books. He said that far more information would be published in this connection in 2011 than in 2010.
The commissioner said that the right corrective measures for banks failing the tests should focus on the private sector to bail out the banks concerned and only when necessary should state aid be considered, adding that state aid would need to comply with EU rules. Barnier said the 2011 stress tests would cover around 65% of the banking industry in Europe in terms of total assets and at least 50% of total assets of any one country. The Commission's ideas about how to manage bank crises will be unveiled before the end of the summer, he said, with the aim of providing bank supervisors with a toolbox of measures to ensure banks can be bailed out early enough to avert disaster. (M.B./transl.fl)