Supervisors across the European Union will examine the way that top banks classify and value loans and other assets to ensure that the stress tests they conduct do a better job of finding any problems.
The European Banking Authority (EBA) said yesterday it would set out guidelines for the review, which will delay the bloc's next round of stress tests until 2014. EBA chairman Andrea Enria said the checks would help boost the credibility of the next pan-EU stress test of banks.
Previous stress tests failed to spot problems on bank balance sheets in eurozone countries including Spain, Ireland and Cyprus, which required international bailouts.
The Government here is likely to do its own stress tests on Irish banks this year to help the country exit the bailout. The Government has resisted calls for the separate tests but the latest sign from Finance Minister Michael Noonan is that the tests will now go ahead this year.
The results will also be important for the debate over the next stage of the banking union – the creation of an authority to wind up troubled eurozone banks quickly.
The asset-quality review will be conducted by the ECB in the 17 EU countries that are joining the new European Banking Union and whose banks the central bank will directly supervise from 2014.
In the remaining 10 EU member states, the national banking regulator will conduct the review, selecting which banks to focus on.
The EBA said the timing of the review and subsequent stress test would be determined once a new law setting up the ECB as banking supervisor was adopted.
In the meantime, the EBA said it would publish an update later this year on banking exposures. This could detail what a bank's capital buffer includes and its holdings of sovereign debt.
In the last stress test, the EU's main banks were ordered to hold capital equivalent to 9pc of their risk-weighted assets.
Questions were raised after previous stress tests over the quality of assets, how banks weighted them for risk and the extent to which banks were slow to write off souring loans.