LEX When alarm bells ring, it pays to react swiftly and decisively. So far, the European Union’s response to the financial crisis has been to talk about the bells rather than stop them ringing. Stress tests are the simplest answer. However rigged sceptics say they might be, stress tests in the UK and the US have helped reassure investors that banks can survive a pretty harsh drubbing – if not a calamitous one. In the UK, bank stocks have led the equity rally since regulators revealed the parameters of their tests. Meanwhile, the usually ultra-cautious Bank for International Settlements has noted their restorative effects. Yet most European regulators have avoided using them.
Senior European bankers are under no illusion that worse is to come. European Central Bank officials even warn that the eurozone recession could destabilise its banking system. The International Monetary Fund has predicted that another $875bn of European bank writedowns lurks in the system. Yet Brussels has instead been busy overhauling financial supervision for the next crisis. Investors in European banks, meanwhile, need transparent stress tests to prove they have enough capital to survive this one.
Sweden has made a unilateral move. Shares in its banks have rallied after the regulator said its tests showed they could withstand the “extreme” pressures building in the Baltics and elsewhere. Peer Steinbrück, Germany’s finance minister, by contrast, has dismissed the usefulness of stress tests, even as some of Europe’s biggest corporate crises unfold on his doorstep, potentially saddling German banks with more bad debts. Releasing the outcome of routine stress tests could do more to restore confidence in the sector than Berlin’s current bad bank scheme. European regulators’ failure to publish the outcome of routine testing does little to dispel the suspicion that a flurry of bank capital raisings lies ahead.
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Swedish banking shares rose sharply on Wednesday after the Swedish central bank announced that the nation’s lenders would be able to weather “extreme” pressures domestically and abroad. The Swedish Financial Supervisory Authority said stress tests showed the nation’s four largest banks could absorb more than SKr150bn in losses from the Baltic region in three years. Other European bank regulators have so far avoided releasing the results of routine tests. |
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