jueves, 3 de marzo de 2011

New Round of Stress Tests for European Banks

PARIS — The European banking regulator said Thursday that it would start a new health check of the region’s banks on Friday and would publish the results in June. It also announced the appointment of its first chief.

The tests will be conducted on a “large number” of European banks and “will take several months to run,” the European Banking Authority, or E.B.A., said in a statement.

Such stress tests, measuring banks’ ability to withstand economic shocks, have been carried out twice after the financial crisis struck but failed to win investor confidence. Since the last round, published in July, further balance sheet problems have emerged, notably at Spanish and Irish lenders.

The tests this year will be run against two hypothetical economic scenarios: a “baseline” and an “adverse” macroeconomic scenario to assess the solvency of the banks involved. The adverse scenario, designed by the European Central Bank, will incorporate a significant deviation from the baseline forecasts and country-specific shocks on real estate prices, interest rates and sovereign debt prices.

The banking authority said it would provide banks with details of the scenarios by the end of this week, after which there will be a period of feedback. The regulator plans to publish the macroeconomic scenarios in full, alongside the sample of banks involved, on March 18. It then expects to provide more details on the principles of the methodology in April.

The regulator said it was still discussing with governments “remedial backstop measures that member states will put in place to address any weaknesses that the stress test may reveal.”

European officials are eager to avoid mishaps that were made in the exercise last year. The French economy minister, Christine Lagarde, said recently: “We need to improve the overall credibility of the process, and that includes communication, range, scope, a combination of bottom-up, top-down quality control.”

In parallel, European supervisors are conducting what are known as liquidity tests.

These tests are detailed examinations of a bank’s liquid assets, which are the reserves of readily available assets and cash that can be used to pay off liabilities at a given time.

But the results will not be published because of their sensitivity and the fact that they are extremely difficult to interpret. They change from day to day and are hard to harmonize given the range of accounting standards and balance sheet structures across the region.

“It’s impossible to go public with this data,” said a European regulator, who was not permitted to speak publicly. “There would be too much information for speculators.”

The statement Thursday did not comment on whether the stress test results would be audited or assessed by an external body, an issue that has been debated by European policy makers. Such an auditor could be a private firm or a public entity like the Bank for International Settlements.

In a separate operation, the International Monetary Fund this year is conducting what it calls financial sector assessment programs in several European economies, including Germany and Britain. These will also provide a detailed analysis of the health of a country’s banks. And this month, the Federal Reserve plans to let U.S. banks know how they did on its most recent round of stress tests. The Fed gave the banks one economic scenario — a recession — to test their books against.

Regardless of this heightened global activity, there are still broad concerns among observers that complex and potentially damaging trading activities might increasingly migrate away from traditional banks, as regulation steps up, toward what is called the shadow banking system, a loose term for firms or operations that specialize in trading and often operate offshore.

The European Banking Authority said that a Hungarian regulator, Adam Farkas, had been selected as its first executive director. He will be in charge of the day-to-day operations and will remain in office for five years, with the possibility of one renewal.

Mr. Farkas recently served as chairman of the Hungarian Financial Supervisory Authority and has held senior positions at private banks, the National Bank of Hungary and the Budapest Stock Exchange. The appointment needs to be confirmed by the European Parliament.

The authority was formed at the start of this year in response to the crisis and in an attempt to harmonize the layers of bank supervision in the European Union. Its board of supervisors, the principal decision-making body, comprises 27 voting members, or one from each E.U. nation.

The authority has also established a banking stakeholder group that will meet four times annually to communicate with lenders. Internally, it has five committees and one panel to support its work.

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