Bank of England seeks opt out from EU bank stress tests

By Huw Jones

LONDON, Dec 5 (Reuters) - The Bank of England wantsBritain's banks to be exempted from a European Union healthcheck next year on the grounds that it will be conducting itsown rigorous exam.

The so-called stress tests are carried out by the EU'sbanking watchdog the European Banking Authority (EBA) everyyear, as an ongoing measure to restore market confidence in EUbanks after the 2007-09 financial crisis and subsequent eurozone debt crisis.

But the test results have come in for criticism becausecountries apply the rules differently. In 2014 the EuropeanCentral Bank will take over supervision of euro zone lenders andplans to run its own rigorous tests to uncover any possibleshortfalls and avoid surprises once it takes charge.

Britain only agreed to the scheme after reassurances from EUgovernment ministers that ECB supervision would not interferewith London's control of its financial centre.

Britain has participated in every stress test so far as theyare a requirement for EU states. It's unclear what action theEBA could take if Britain unilaterally withdrew as no countryhas done so before.

The BoE, which has imposed tough capital requirements andad-hoc tests on lenders in Britain, said in October it wouldconduct a stress test annually, starting in 2014 with the topeight lenders.

Jo Paisley, director of risk analysis at the BoE, told abanking conference earlier this week there were discussions withthe European Banking Authority (EBA), the EU's financialwatchdog that coordinates the regional stress tests.

"It's early days, but there is dialogue," Paisley told theconference. The BoE confirmed on Thursday that talks wereunderway. The EBA had no comment.

Britain wants to avoid going through two complex andintensive tests at the same time, and is confident that its owntest as more stringent than the wider European healthcheck.

The BoE plans to show the EBA that the UK test will meet therequirements of the EU test and demonstrate clearly theresilience of the UK banking sector.

The next EU stress test won't be conducted until late springor early summer, after the ECB's asset quality review (AQR),which the EBA has urged all EU states to carry out.

The results of the AQR and stress test will be publishedtogether in late October.

Britain's tests earlier this year showed that Barclays andCo-operative Bank needed to raise capital and that they andNationwide needed to show how they could improve their capitaland leverage ratios.

Britain has said that the UK's top eight lenders must complyfully with the new global financial rules known as Basel III,which relate to minimum capital requirements, from January -five years earlier than the global deadline.