EU-wide stress test reveals need for further action on banking

A comprehensive assessment of euro area banks, released by the European Central Bank (ECB) has revealed that 24 banks have failed stress tests.

By James O'Brien

27 Oct 2014

Vice-president of the ECB Vítor Constâncio said, "This unprecedented in-depth review of the largest banks' positions will boost public confidence in the banking sector. By identifying problems and risks, it will help repair balance sheets and make the banks more resilient and robust. This should facilitate more lending in Europe, which will help economic growth."

Chair of parliament's economic and monetary affairs committee, Roberto Gualtieri agreed with Constâncio in relation to the importance of the stress tests, noting that ‪"since the beginning of the financial crisis, the European parliament has been fighting hard to create genuine, strong financial supervision at EU level".

"[Sunday's] announcements are a crucial step towards the full implementation of the banking union that will put an end to market fragmentation." Gualtieri added that the stress tests "are not an academic exercise" and described the imminent direct supervisory role of the ECB of 120 euro area banks as "revolutionary and probably the most important step in the economic integration after the introduction of the euro".

He said the exercise would help put the "EU banking sector on solid footing and to make credit flow to the real economy and bring back growth and jobs".

S&D group president Gianni Pittella added that "the financial situation of the 24 European banks, which have failed to meet the stress test, raises concern to our group" but expressed confidence that the identified banks would "soon be ready to stabilise their financial situation".

Sylvie Goulard, ALDE coordinator on parliament's economic and monetary affairs committee welcomed the assessment, saying, "This assessment is of crucial importance and enables the banking union to really take form. The banking union is a new phase in European integration, made possible thanks to the pressure exerted by the European parliament.

"MEPs pushed for it against initial reluctance from member states, although ultimately pressure from the markets convinced them that it was time to act".

Philippe Lamberts, Greens/EFA co-president, criticised the ECB for its "flawed assessment methodology" which he said would "hamper efforts to effectively assess the true risk in the sector, with a view to ensuring effective regulation".

He added, "While [Sunday's] stress tests have shone the spotlight on some of the weakest sections of the banking sector, this should not divert attention from the need for decisive structural reform of the banking industry."

Lamberts concluded, "A clear-cut separation of banking activities is of vital importance to reduce systemic risks by making banks less complex, less interconnected and more resilient to financial turmoil. This must be a top priority for the EU".

Banks found to have capital shortfalls must prepare plans within two weeks and have nine months to raise the required investment, which amounts to €25bn.

 

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