Bank stress tests must be credible, thorough and transparent

The banking sector’s close connection to the sovereign debt crisis and to financial stability at a global level call for more transparency in the banking system and its capability to stand the stress tests.

“We have repeatedly said bank stress tests must be credible, robust and transparent”, said Sharon Bowles, ALDE group at the European Parliament and President of the Economic and Monetary Affairs Committee (ECON) during last night’s debate on stress tests of the EU banking sector at the European Parliament.

“Now these new stress tests are improved under the European Banking Authority (EBA), but there are still issues being avoided due to prevarication by Member States. It is about time the message sunk in that feeble political will is not the answer to this crisis and makes solutions more expensive”.

“The stress tests are provoking a reaction from the banks which are seeking additional capital, whilst some Member States are being pro-active in pushing banks to raise capital, but there is no overall plan to address undercapitalisation. This does not stack up – surely one thing we have learned in the crisis is that we are interconnected. If banks stop trusting one another and the interbank lending freezes again, we have a big problem so we must have proper disclosure and coordination of the response”.

Her ALDE groupmate Sylvie Goulard – who is also ALDE coordinator for ECON – added that “In comparison with the previous round of stress tests, this time the criteria are tougher and include analysing exposures to sovereign debt and disclosing these exposures. This is essential if these stress tests are to be considered credible. I fully support the request by the EBA for Member States to provide remedial back stop measures to address any weaknesses exposed by the stress tests, in advance of the tests being undertaken”.

Indeed, she added: “There is a clear link between the sovereign debt crisis and the resolution of the crisis in the banking sector and this needs to be acknowledged if it is to be resolved. I believe that these stress tests are a first step in this direction.”

Olle Schmidt, ALDE MEP from Sweden, is convinced  “The Swedish banks took too high risks in the Baltic states in 2005-2007, and the supervisory authorities in Sweden failed to discover the risks in their stress tests. Therefore I am a strong advocate for strong and prudent stress tests.”

“Banking is about trust and the result of the stress tests needs to be open and transparent so that citizens’ confidence is raised for the banks. It is important that the EFC and CEBS develop a coherent communication strategy for the publication of future test results. The publication strategy must focus on the transparency of the test methodology.”


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