Ministers still divided over bank stress tests

EUROPEAN FINANCE:EU FINANCE ministers admitted lingering divisions over the scope of stress tests on 91 key banks as they pledged "maximum transparency" when the first results are published on Friday week.

European economics commissioner Olli Rehn repeated the view that the EU’s €500 billion share of the €750 billion rescue fund for distressed euro countries could be tapped as a last resort to recapitalise banks found wanting in the tests.

“If there were to be excessive problems which could not be covered by either market financing or national backstops, we would have the third line of defence, which are the European instruments. However, I don’t believe this will have to be used,” Mr Rehn said.

At meetings in Brussels, the ministers made slow progress on the development of a new pan-European system of financial regulation while endorsing Estonia’s entry to the euro next January, and agreed to trigger a legal process to increase mutual budgetary surveillance from next year.

Minister of State Martin Mansergh, who represented the Government at the meeting, suggested the new surveillance regime could have implications for the next general election as it will reduce scope for parties to pledge to increase spending.

“Whether one is talking about public opinion or in the political world, I’m not sure that we’ve yet seen an adequate note of the way the situation has changed,” he told reporters.

“I think this is relevant coming up to an election in a maximum of less than two years’ time. It simply isn’t going to be possible to be rowing in the opposite direction.”

Although analysts at Deutsche Bank have warned that AIB and Bank of Ireland are likely to fail the stress tests, Mr Mansergh suggested there was little anxiety about the process in Government circles.

“We’re not really expecting to be told anything much that we don’t know already about the domestic banks, simply because they’ve been under the microscope for some time past.”

Belgian finance minister Didier Reynders, whose country holds the EU’s rotating presidency, said ministers were committed to transparency in the test results but cited “co-ordination” problems in terms of their publication.

Consolidated results will be published at bank group level on Friday week with data on cross-border subsidiaries due about two weeks later. “It’s only a problem of co-ordination, to be sure that we are publishing at the same moment all the figures,” Mr Reynders told reporters.

The tests are designed to engender confidence by removing unwarranted suspicion from healthy banks, but participants agree they could be self-defeating if they do not embrace tough sovereign debt and property market scenarios.

Ministers conceded they have yet to resolve their divisions over the scope of tests. “We are still discussing what we are going to publish from the stress tests,” said Anders Borg of Sweden.

Christine Lagarde, his French counterpart, said a final decision might have to wait until a telephone conference on the eve of publication: “Discussions will continue until the last minute.”

In addition to the stress tests, the ministers are also trying to forge an agreement with legislators in the European Parliament on new regulators for the bank, insurance and securities markets.

At issue is the extent of powers under which European regulators could direct binding decisions over national regulators. The parliament favours strong powers for European regulators in this area, but this causes alarm in Britain due to a perceived threat to the City of London financial market.

After the ministers mandated Mr Reynders to make concessions on their behalf, talks on the legislation resume today. Internal markets commissioner Michel Barnier told reporters that the negotiation was “on the right track”.