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Bank stress tests cannot be a half-way house

July 26, 2010 6:00 AM

The EU's bank watchdog, the Committee of European Banking Supervisors (CEBS), is to publish the results of its bank stress tests. Stress tests were implemented last year in the US to identify banks that would require additional capital to survive in case the recession got worse.

The US tests revealed that the Bank of America was most at risk, needing an additional $33.9bn. The findings were made public and helped to calm the markets.

European Banks have been undergoing confidential stress tests for some time but recently it was decided to publish the results. The tests cover 91 banks including big high street names such as Santander, and also smaller banks, in Germany and Spain in particular, which have long been under a cloud of suspicion.

South East Lib Dem MEP Sharon Bowles, who chairs the European Parliament's Economic and Monetary Affairs Committee, said: "Stress tests can be kept confidential, but in this case, to assuage the markets, the last European Council has decided to make the results public."

"I welcome the move, but must point out that it is no good having results without full information about the tests. There cannot be a half-way house - at best, markets would ignore that, at worst, there could be a backlash fearing something is being hidden. Some people suggest the tests have not been severe enough. I do not think that matters so much as long as analysts know what has been the test and what the result. It will also be necessary for there to be plans about how to cover any lack of capital that is exposed."

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