The European Commission is pushing to include tests of liquidity of banks in the coming year stress test of the European Union following the financial crisis in Ireland, according to two people familiar with the discussions.
Possible changes follow concerns that recent evidence made public in July did not show that banks could withstand the financial crisis, said the people, who declined to be identified because the talks are private.
This year the stress tests at the European level focused on levels of capital that banks had to absorb losses and measure the risks posed by the lack of liquidity. The regulators will meet the test data at the beginning of next year, under the direction of the European Banking Authority, the European Central Bank and the Commission, the executive arm of the EU's 27 nations.
"You need a clear vision of what will be liquid and will not be and there are too many variables," said Simon Gleeson, a financial regulatory lawyer at Clifford Chance LLP, in a telephone interview in London today. "That's why we have not done so -. It is very easy to ask, but very difficult to do in practice"
In preparation for the tests this year the stress of the EU, some countries indicated that it would be difficult to compare banks 'liquidity,' said one person familiar with the discussions.
Ireland Rescue
Ireland is in talks with the European Union and the International Monetary Fund by 85 million euros (113.7 billion U.S. dollars) aid package that the authorities try to prevent the country's financial crisis spreads to Portugal and Spain. Ireland's financial system after the implosion of banks accumulated losses when a housing boom ended a decade.
Allied Irish Banks Plc and Bank of Ireland Plc stress tests exceeded European holdings in their capital. Anglo Irish Bank Corp. has not been tested. German Hypo Real Estate Holding AG, Agricultural Bank of Greece SA and five Spanish savings banks are not stress tests across the EU in 91 banks in July.
banks' ability to measure stress tests "to support the economic crisis. The scenarios in this year include securitized debt products being downgraded four levels of rating companies, down 20 percent in the value of European equities in 2010 and 2011, falling house prices and evidence in 50 other macroeconomic parameters.
The tests were criticized for not being strict enough, because European banks are listed by regulators to require only 3.5 billion euros of new capital, about a tenth of the lowest estimate of analysts.
"Demand"
Stress tests next will be "demanding," said Jonathan Faull, director general of financial services to the commission, at a conference organized by the regulator of the markets of France in Paris.
Regulators are "going to try to draw all the lessons of this year to try to improve" the stress testing methodology, Chantal Hughes, spokeswoman for the commission, told reporters in Brussels. The European Banking Authority, or EBA, is scheduled to conduct the test in 2011 "sometime early next year," he said.
In the past two weeks, three of Ireland traded lenders reported an outflow of deposits since late June amid concerns that losses from bad loans exceed the stress tests conducted by the central bank . dependence on Irish lenders emergency liquidity on the European Central Bank rose another 7.3 percent to 130 million euros in October, Ireland's central bank said on November 1 because they were frozen at the markets wholesale.
Lost Deposits
Allied Irish, Bank of Ireland and Irish Life & Permanent Group Holdings Plc lost 12 million euros, euros, 10 billion and 600 million euros of deposits of enterprises, respectively, since late June, "said Emer Lang, analyst at Dublin-based securities firm Davy, in a note to clients on 24 November.
"We have cooperated fully" with the Europeans "stress tests in the past and will continue," said Ronan Sheridan, a spokesman for Allied Irish, in a telephone interview.
Anne Mathews, spokeswoman for Bank of Ireland, declined comment. Anglo Irish spokesmen declined to comment immediately. Ray Gordon, a spokesman for Life and Irish Permanent, could not immediately be reached for comment.
Heidi Ashley, spokesman for the Financial Services Authority in the UK, William Lelieveldt, a spokesman for the European Central Bank, and Congiu Franca Rosa, spokesman for the Committee of European Banking Supervisors declined comment. CEBS replace the EBA based in London in January.
reserves the measures of bank liquidity available assets and cash that can be used to pay liabilities.
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