Europe News

European Regulators Under Fire Over Bank Stress Tests

Patrick Jenkins, Brooke Masters, Miles Johnson, Financial Times

Europe’s banks are growing increasingly angry over the stress tests being run by European regulators, complaining that the process has been excessively rigid, with damaging changes to the exercise rushed through at the last minute.

The tests, the results of which are due to be announced next week, have been in preparation since March, but banks are furious that less than a month ago they were forced to rerun the stress scenarios along far tougher lines than had been originally suggested.

Bankers and analysts believe that up to a dozen banks may fail?the tests,?most in Spain, Germany and Greece.

One listed Spanish bank said: “There’s a feeling they want some Spanish banks to fail to make it look like they are being tough.” Executives at some of the biggest banks, such as BNP Paribas, Deutsche Bank and Barclays, have also been critical, irked that the European Banking Authority, which is running the process, initially asked banks to make their own risk assessments before imposing scenarios last month.

Last month, Jochen Sanio, head of German regulator BaFin, was publicly critical of the EBA, accusing it of acting “without legal authority?...?or legitimacy”.

Banks in Spain and Germany are the most upset, complaining that the idiosyncrasies of their own national loan loss provisioning and capital standards have been ignored in the name of pan-European consistency – an absurdity, they say, when day-to-day responsibility for regulating banks remains national.

“It’s bloody difficult to compare banks on a European basis when they’re subject to different rules on a national basis,” said one senior German banker.

Spain’s cajas, or quasi-mutual savings banks, which have long been thinly capitalised, are worried that publication of the stress test results could disrupt plans to raise fresh funds.

“If we pass, that’s great,” said Enrique Goñi, co-chairman of Banca Civica.

“But if others in Spain don’t, that’s not very good news for us.” Civica, like local rival Bankia, is in the midst of an attempt to float.

The EBA, which has previously criticised the optimistic assumptions made by some banks in initial submissions, said it had called on banks instead to apply “conservatism and consistency”.