U.S., Europe clash on bank stress tests

Bank crumbles

TEXT OF STORY

Kai Ryssdal: Finance ministers from the G-20 meet Friday in South Korea. The main agenda item will be the health of the European banking system. U.S. Treasury Secretary Timothy Geithner's expected to push for tougher stress tests of European banks and for eventually full disclosure of the results.

Not likely that he's going to get it, as Marketplace's Stephen Beard reports from London.


Stephen Beard: The U.S. is worried. European banks are showing the same signs of strain that helped trigger the global recession two years ago. They are becoming reluctant to lend to each other. This time the banks are nervous about which of them is holding dodgy European government bonds. The U.S. wants Europe to stress test its banks in public.

Good idea, says Jan Randolph of IHS Global Insight.

Jan Randolph: Most banks actually do most business with each other, so this kind of uncertainty over who is sitting on problems needs to be cleared. And the idea of a stress test is to clear this level of uncertainty.

The U.S. did this last year. Nineteen American banks were subjected to a series of theoretical traumatic events, and then required to raise extra capital, if necessary. The move helped restore confidence in American banking.

But analyst Michael Prest says staging an exercise like that across Europe won't be easy.

Michael Prest: There is no single authority, and this is the sort of thing about Europe which always drives Americans mad. You know the old gibe, "Who do you call when you want to speak to someone in Europe?"

And there's a cultural problem too, says Jan Randolph. Continental Europeans are not always enthusiastic about transparency.

Randolph: They feel that to reveal too much information about individual banks can actually make the situation worse. So, they've got differing viewpoints in terms of how much information is necessary.

European officials say they will carry out bank stress tests in their own way. The results should be ready by the fall, but they will not be published.

In London, this is Stephen Beard for Marketplace.

About the author

Stephen Beard is the European bureau chief and provides daily coverage of Europe’s business and economic developments for the entire Marketplace portfolio.

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