EUROPEAN REGULATORS have accused Germany and its banks of reneging on a deal to publish full details of sovereign debt holdings, as part of the four-month-long stress-test of the country’s banking sector.
Arnoud Vossen, secretary-general of the Committee of European Banking Supervisors, the pan-European banks regulator, said it agreed with all supervisory authorities and with the banks in the exercise that there would be a bank-by-bank disclosure of sovereign risks.
On Friday, the Committee of European Banking Supervisors published the results of its stress-test exercise, showing seven of the 91 banks tested across the 27 countries of the EU failed to achieve a tier-one capital ratio of 6 per cent once their balance sheets were exposed to a series of macroeconomic scenarios for 2010 and 2011. The tests – designed to restore nervous markets’ faith in European banks, shaken by the near-default of Greece this year – were supposed to be accompanied by full disclosure of each bank’s sovereign debt holdings.
But six of the 14 German banks tested – Deutsche Bank, Postbank, Hypo Real Estate, mutual groups DZ and WGZ, and Landesbank Berlin – did not publish the expected detailed breakdown of sovereign debt holdings, although Postbank yesterday disclosed some information.
Every other European bank, bar Greece’s ATEbank, which failed the test, complied with the disclosure requirement.
Analysts said the German banks’ non-compliance would fuel suspicion they had something to hide, and risked further undermining faith in the whole stress-test exercise, already criticised for its benign scenarios.
Officials from the German regulatory authorities – Bafin and the Bundesbank – said local law meant they could not force banks to publish such details.
The EU tests of banks’ ability to withstand financial shocks face their own stress test in the markets today with early signs pointing to a more positive response.
EU policymakers and regulators voiced relief at Friday’s results but some market analysts and media commentators derided an exercise in which all listed banks passed as lacking in credibility. There was scepticism about EU regulators’ conclusion that banks need only €3.5 billion in extra capital. Market expectations had ranged from €30 to €100 billion, although many European banks have already raised capital during the crisis.
However, the wealth of data disclosed by banks representing 65 per cent of assets, and the commitment of banks, regulators and governments to follow-up action may well outweigh doubts about the stringency of the tests.
In a first market reaction in New York late on Friday, the cost of insuring the debt of large European banks fell further and the euro rose against the dollar despite worries about the tests’ credibility.
Better-than-expected economic data and business confidence surveys – suggesting the euro zone will avoid a double-dip recession despite fiscal austerity measures – are also helping revive investor confidence in Europe. – (Copyright The Financial Times Limited 2010/ Reuters)