August 19, 2022

Stress Tests for Europe’s Banks Take Longer Than Expected

LONDON — The stress testing of European banks is taking at least a month longer than initially expected because some banks submitted figures that were too optimistic or lacked detail, a person with direct knowledge of the process said on Thursday.

Banks were asked for more information about their calculations of how they would fare in distressed financial markets and to resubmit their results to the European Banking Authority, said the person, who spoke on condition of anonymity because the process is not public. The European Banking Authority, which is based in London, is expected to publish the results next month instead of this month.

“The tests are important because they give disclosure that is consistent across all banks,” said Philip Richards, an analyst at Société Générale in London. “It’s not about who fails but about getting more information including on sovereign debt risks.”

The delay, announced in a statement late Wednesday, comes after a similar test conducted last year drew criticism that the parameters used were not rigorous enough, and that the tests were too easy to restore confidence in the 91 European banks covered. Some economists said they excluded the possibility of a Greek debt default.

The banking authority released a stricter test methodology in March and the 91 banks submitted their data in April and May. But erroneous or missing data meant the banking authority would need more time to analyze the results.

“Errors will have to be rectified and amendments made where there are inconsistencies or unrealistic assumptions,” the authority said in the statement.

Some banks complained about the additional workload caused by the stress tests and others questioned their relevance. Hypo Real Estate, which failed the previous round of stress tests, said last year that the tests had “limited relevance” because it was already transferring troubled assets into a vehicle backed by the German government. Hypo Real Estate failed last year’s stress test along with ATEBank of Greece and five Spanish savings banks.

The new rules laid out by the authority this year have become a heated political issue again in Germany because they appear to create a problem for some German landesbanks by disqualifying a part of the funds they now use to meet regulations on shock-absorbing reserves. The economics minister of the state of Hessen, Dieter Posch, said in April that the state’s landesbank, Helaba, should boycott the stress test.

As part of the test, European banks would have to reveal how much sovereign debt from a European country they hold. At a time when some analysts say that a restructuring of Greece’s debt remains an option, such numbers will be closely watched by investors.

Jack Ewing contributed reporting from Frankfurt.

Article source: http://feeds.nytimes.com/click.phdo?i=aa522554f155f6c14849dc2c4c5bfd74

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