WRAPUP 1-Europe to outline bank test methods Wed – sources

* EU regulators to show how they stress-test banks

* Battle still waging about which banks to test

* Stress tests aimed at reviving confidence in EU banks

(Adds more detail, quotes, background)

By Julien Toyer and Philipp Halstrick

STRASBOURG/FRANKFURT, July 6 (BestGrowthStock) – European bank
regulators will seek to safeguard the credibility of health
checks on top banks by showing how the tests are done, to allay
investors’ fears of political meddling.

The Committee of European Bank Supervisors (CEBS) will on
Wednesday outline the methodology of a stress test that
simulates the impact of a severe economic shock on about 100
banks in the euro zone and other countries, sources close to the
process said.

The move, agreed last week, comes as speculation mounts that
national authorities and bankers are massaging the test design
to make sure their systems fare well, potentially undermining
the regulators’ goal to boost confidence in the banks.

In a sign of political influence, three sources said that
CEBS may not publish a list of the participating banks because
it was still not finally decided which German banks would take
part. [ID:nLDE660160]

“The CEBS (Committee of European Bank Supervisors) wants to
explain the methodology,” one source involved in regulators’
discussion about the stress tests said. This source said CEBS
had also planned to say which banks participated in the tests.

The banks got the stress templates on Tuesday and will have
to deliver their answers by July 15, another source said.

The results of the stress tests, including data for all
individual banks, are due to be published on July 23. It will
include around 100 banks in the euro zone and Great Britain,
Sweden and Denmark, sources have said.

Market demand for more disclosure conflicts with regulators’
and banks’ concern that their transparency may be misread and
could heighten scepticism about the health of Europe’s banking
sector which has knocked 15 percent off the Stoxx European banks
index (.SX7P: ) this year so far. [ID:nLDE65M0ZX]

The European Central Bank (ECB) and the European Commission,
the EU’s executive body, are pushing governments to take a leap
of faith, arguing the test will not convince investors if it is
too easy.

“If every bank passes the test, the stress wasn’t
sufficient, the markets will say,” said one senior banker who
like the other sources for this story required anonymity.
“Therefore some banks won’t pass the test.”


Bank of France Governor Christian Noyer and Sweden’s
financial watchdog joined peers from Germany, Spain and Austria
on Tuesday in saying that everything was fine with their
country’s banks in the stress test. [ID:nLDE66510F]

“(Testing) is not finished yet, but there’s no reason to
believe that the result of the French banks will be different
from regular tests that we do and which they passed with
success,” he told reporters on the sidelines of a conference.

Sweden’s banks, which raised equity last year to deal with
ballooning loan losses in the crisis-hit Baltics, were now
capitalised well enough to fare strongly, said Lars Frisell,
head of Sweden’s banking watchdog.

Most analysts agree that concerns are limited over large,
listed, cross-border banks but that the focus will be on
smaller, unlisted public-sector lenders, particularly Germany’s
landesbanks and Spain’s cajas. [ID:nLDE65T1WZ]

The stress test includes scenarios on possible writedowns of
euro zone sovereign bond holdings, a politically loaded issue
because those assumptions run counter to European policymakers’
stance that neither Greece nor others will default.

While no stress will be applied to German bunds, the stress
on sovereign bonds of the southern European countries will be
substantial, a source close to the matter said.

CEBS may also partly skirt the issue by releasing just the
amount of sovereign bond holdings on a bank’s books, allowing
investors to make their own assumptions, two of the sources
said. Many banks have so far declined to disclose their holdings
of debt in peripheral euro zone countries. This is one of the
contentious issues that may not be finally resolved by the
statement expected on Wednesday.

Discussions with German authorities are also still not
concluded about the exact number of German banks that will take
part in the test.

“We might see NRW bank dropping off the list,” a source
close to the matter said, adding this would leave Germany with
15 banks taking part.

(Additional reporting by Boris Groendahl in Vienna, Arno
Schuetze in Frankfurt, Lionel Laurent and Marcel Michelson in
Paris, Mia Shanley in Stockholm and Huw Jones in London; Editing
by Susan Fenton and Erica Billingham)

WRAPUP 1-Europe to outline bank test methods Wed – sources