EUROPE MUST make its bank “stress tests” more transparent and extend them across more institutions to enhance their credibility, according to the International Monetary Fund (IMF).
The results of the stress tests on 91 financial institutions across the European Union, due to be released tomorrow, will assess the banks’ ability to withstand renewed economic weakness and bankruptcies in the household, corporate and sovereign sectors.
But some market participants have criticised the lack of information about the scenarios being tested, fuelling suspicions that they are being engineered to produce a favourable outcome.
The IMF said that while the markets seemed to have taken a positive view of the process so far, “some uncertainty regarding the stringency of the tests is likely to remain”.
Too many banks were still dependent on government support and were vulnerable to lapses in confidence, the IMF said, in its annual assessment of the euro zone.
But the IMF reported resistance from euro zone authorities to the idea of more transparency. “Supervisors felt that disclosure of individual bank results could prove too market sensitive and some national authorities noted legal impediments to publication,” the fund said.
The tests, conducted by officials meeting in the Committee of European Banking Supervisors (CEBS), are similar to a US exercise undertaken last year that helped convince investors that the American banking system was stable.
The IMF said that euro zone governments needed to be on hand to help with recapitalisation if it turned out that any of the banks had insufficient capital. In its assessment of the euro zone’s economic policies, the fund said that governments needed to commit to fiscal sustainability and boost growth through structural reforms as well as strengthening the banking system.
“The authorities broadly concurred with this analysis, but the implementation is as yet patchy,” the IMF said.
Paris and Berlin yesterday went some way towards resolving their differences on euro zone governance with a joint call to suspend voting rights of members who repeatedly break impending new rules on fiscal discipline.
However, in a clear signal that the deepest differences between the euro zone’s two leading countries have not yet been resolved, French and German finance ministers meeting in Paris yesterday said the sanction should be designed as a political agreement and legally non-binding. This could make the sanctions difficult to impose.
The call came as Wolfgang Schäuble became the first German finance minister to attend a French cabinet meeting in a highly symbolic gesture aimed at restoring a relationship that has been fraught with tension in recent months.
