By Agency Reporter
European Union regulators checking the health of banks in coming weeks should spell out to markets what is being tested and how the results will be released, a top European banking lobby has said.
“Say it early, say it upfront and give people the right amount of time to respond,†the Chief Executive Officer, of the Association for Financial Markets in Europe, Mr. Simon Lewis, told the Reuters Future Face of Finance Summit.
Last year’s stress test of 91 banks from across the European Union left markets unconvinced after Irish banks passed even though they had to be rescued later.
Lewis said the way in which last year’s stress tests were conducted by the European Commission, European Central Bank and banking supervisors from EU states was a good example of how not to communicate effectively.
Markets were left in the dark over the exact methodology used until the results were released late on a Friday afternoon, causing the banking regulator’s website to crash as people tried to download results.
Regulators are due to agree on this year’s methodology this week and may publish guidance.
The next stress test, which regulators have said will be tougher, is about to start with the outcome due around June.
There has been a behind-the-scene debate over how they will be toughened up, such as by testing liquidity as well and imposing bigger losses on holdings of government bonds.
Lewis, a former director of communications at Number 10, seat of the British prime minister, said timing and transparency were essential in communicating well to markets.
“There is such a huge public interest in this industry,†Lewis said.
“The process needs to be clearly laid out in advance, there needs to be a lack of surprises,†he added.
Setting a specific date for the release and spelling out clearly what will be released were essential, he said.
This year, the stress test will be mainly handled by the new European Banking Authority whose predecessor played more of a coordinating role last year.
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Source: Punch
