Irish

Thursday 21 August 2014

'Nasty surprise' unlikely in bank stress tests

Colm Kelpie

Published 17/06/2014 | 02:30

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European Central Bank governing council member Ewald Nowotny
European Central Bank governing council member Ewald Nowotny

THE State's banks are unlikely to face a "nasty surprise" in the upcoming European-wide stress tests, the head of the State's budgetary watchdog has predicted.

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It comes as a member of the European Central Bank's governing council claimed the tests may be too tough.

The ECB will probe the financial health of 128 banks across Europe – including five in Ireland – in the autumn.

Professor John McHale, chair of the Irish Fiscal Advisory Council (IFAC), insisted it was hard to call as he didn't have any "insider" knowledge.

But he said: "At this point, given the balance sheet assessment, it doesn't look like we're going to get a nasty surprise.

"The truth is, we won't know until it's actually been completed."

Earlier, ECB governing council member Ewald Nowotny said the stress tests may end up being too tough.

"The test will be strict, perhaps even too strict," Mr Nowotny said. "I fear that in the ambition to do this especially well, the ECB will go far beyond what the United States has done. That can lead to exaggerations," he told Germany's 'Sueddeutsche Zeitung'.

Shaky

Mr Nowotny, also governor of the Austrian central bank, said he saw no problems or "shaky candidates" among the six Austrian banks to come under direct ECB supervision late this year.

In Ireland, AIB, Bank of Ireland, Ulster Bank and Permanent TSB will be stress-tested as well as the Irish-based operations of Merrill Lynch.

Finance Minister Michael Noonan has repeatedly said that there is no evidence that the banks will need further capital.

Domestic Irish banks went through so-called asset quality reviews (AQR) late last year as a prelude to the main tests to be carried out in the autumn.

The stress test process is aimed at uncovering any hidden risks or losses in the banks by the end of October, before the ECB takes responsibility for overseeing them in November.

The 128 banks will also be subjected to a stress test looking at whether they need more capital to deal with future crises.

Separately, Mr Nowotny again dismissed speculation the ECB could resort to direct purchases of state debt to help boost the euro zone economy.

"The ECB will not be led by the dictates of the market. It makes no sense to conduct phantom discussions of any kind," he said.

He defended the ECB's decision to cut interest rates to record lows and said the impact on savers was being overestimated. (Additional reporting Reuters)

Irish Independent

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