European banks should disclose their exposure to sovereign bonds on Friday at the release of stress tests, despite the last-minute haggling on the part of German Banks on the breadth of information to reveal.
The publication of test results, expected Friday night from 1600 GMT (18 hours in Paris) after much procrastination, is supposed to prove to investors that the 91 banks in the European Union passed through the mill can handle an economic crisis and and financial authorities are able to solve the problems of institutions that do not pass the tests.
The Committee of European Banking Supervisors has asked banks, according to a document obtained by Reuters, to provide all information relating to their assets in sovereign debt, but left the responsibility for publishing to banks and national supervisors.
The publication of these assets could end the uncertainty surrounding the exposure of European banks to debts Greek, Spanish and Portuguese, the three countries so far the hardest to convince of their ability to support high debt in period low growth.
Bank stocks were trending up Thursday, a signal that investors are beginning to hope that the worst is over in this area where mistrust between institutions has been at the heart of the financial crisis of 2008.
German banks, which are among the largest holders of bonds of the Greek State, were most reluctant to provide data.They are now ready to bow to pressure from other European players, have revealed several industry sources.
Cacophony
Confusion has surrounded the scheduled time of publication of the "stress test" was added to weeks of rumors about the bank balance sheets, regarded as a major element in assessing the ability of banks to survive a new economic crisis.
Leaders and bankers from several countries including Germany, France, Greece, and Belgium have said that their credit institutions should pass the test, which could raise concerns about the excessive indulgence of the tests and their failure to reassure the markets.
The "cacophony" European contrasts with the discipline that accompanied publication of tests last year equivalents in the United States, which were crucial to restore confidence on Wall Street.
"When the American stress tests have been available for over a year ago, this was done with military precision (…).It was "yes, sir! Well, sir!" Remembers Christopher Nijdam of AlphaValue.
"Here in Europe you have a great cacophony, with leaks of each national regulator who is trying one way or another to protect his reputation or that of its banks."
Some investors have called for full transparency, notably through the publication of a comprehensive list of government bonds held by banks, allowing them to do their own tests with more or less optimistic assumptions.
TWO SCENARIOS
The publication by the banks detailed their exposure to sovereign bonds was a signal of transparency demanded by investors and the International Monetary Fund said Wednesday that the banking sector was one of the main risks weighing on the recovery in Europe.
Given the few details available about the format of publication of these tests and divisions emerged between the 27 member states on how much information to disclose, some investors were concerned that the review is not sufficiently severe or sufficiently transparent.
He was asked the 91 banks submitted to tests to assess whether their capital ratio "hard" (Tier 1) would remain above 6% in two different scenarios in case of relapse of the economy (Scenario 1) , which would be added in the second case of heavy losses on government bonds.
Institutions that fall below the threshold will normally announce what they intend to solve this problem.
Some investors believe that if the deficits detected in the system are not sufficiently consistent with market expectations, and if the recapitalization measures are not generous enough, stress tests may fail to convince.
The bank Slovenian Nova Ljubljanska Banka was the first Wednesday in announcing a capital increase related to stress tests, although analysts expect it to pass the examination, which shows that there may recapitalizations even for facilities that would remain beyond 6%.
The big banking side, which are constantly under the eye of investors, should also pass the test, but the main lesson from this thorough review could be the biggest problems lie in small entities, such as boxes of Spanish savings banks and regional German, who for the most part, are not traded on markets.
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