By Huw Jones
LONDON, Jan 22 (Reuters) - Stress testing of banks in the
European Union to check their ability to withstand market shocks
without taxpayer help should be eased to cut bank costs, the
EU's banking regulator proposed on Wednesday.
The European Banking Authority (EBA) proposed a new
framework that would allow banks to publish their own results of
the stress test alongside the EBA's. Only one set of results are
published now.
"The framework we are proposing today aims at making the
EU-wide stress test more informative, flexible, and
cost-effective," EBA Chair Jose Manuel Campa said in a
statement.
Stress testing became a regular exercise in the United
States and Europe after the global financial crisis a decade ago
when taxpayers had to bail out under-capitalised lenders.
The EU conducted its first pan-European test in 2011 to see
how well banks could shocks. The outcome of the tests puts
pressure on banks to top up capital quickly, where needed.
But with banks now adequately capitalised in general, the
test has become less frequent - every two years instead of
annually - and used by supervisors to look beyond basic capital
levels to more specific risks like poor profitability.
EBA said it was time to take stock, and in a discussion
paper for public consultation, it proposed two parts to the same
test. In the first, the EBA would test the need for any
additional capital at specific banks. The second would be
conducted by banks themselves.
Both would use the same stress scenarios as a basis for the
test, with two sets of results, one from supervisors, the other
from banks.
"The methodology from the bank leg would be less
prescriptive than today and give banks more discretion in
calculating their projections," EBA said.
"The two legs of the exercise would lead to two sets of
outcomes: the supervisory outcome would be directly linked to
the bank's P2G and would provide limited disclosure, while the
bank leg would facilitate market discipline through its broader
transparency with granular disclosure."
Banks would have to explain and disclose why their results
differed from those of supervisors.
The next EU stress test is due this year and will be
conducted under the existing framework, with results published
in July.
Analysts have criticised the existing EU test as being more
lenient that the test of U.S. banks conducted by the Federal
Reserve. Any move to ease the EU's exercise could face
scepticism from markets.
(Reporting by Huw Jones, editing by Larry King)