Fallout: The Financial Crisis

Europe banks may undergo stress tests

Stephen Beard May 12, 2009
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Fallout: The Financial Crisis

Europe banks may undergo stress tests

Stephen Beard May 12, 2009
HTML EMBED:
COPY

TEXT OF INTERVIEW

We’re hearing this morning the European Union will launch its own version of bank stress tests. A way to make sure the banks are capable of weathering a severe economic fallout. Our European correspondent Stephen Beard joins us now from London.
Stephen, what do we know?

STEPHEN BEARD: Well the details are very sketchy. We’re just hearing a series of leaks really from Brussels. But the word is that EU finance ministers, finance ministers representing the 27 member states have agreed to a pan-European banking stress test.

CHIOTAKIS: Will these look anything like the American stress tests that we had this year?

BEARD: Well that is the key question. The devil will be in the detail. I mean the word is that actually it won’t be. The European test will be less individualistic than the Americans’, you see conforming to stereotype here. It’s going to be more collective. It won’t test the ability of each financial institution to withstand a major downturn. It’ll test a group of say 45 banks with cross-border operations to see whether they can withstand a major downturn. But the details of the individual performance of individual institutions will not be published apparently.

CHIOTAKIS: Why won’t we hear any individual details Stephen?

BEARD: Well because here we have the problem. As the Brits have pointed out, there is no such thing as a European taxpayer. If, let me give you an example, a bank in Portugal or Greece or a series of them in these countries are identified as severely under-capitalized, who then puts up the money to bail them out? There is no institution that Europe can go to, other than say Germany — the wealthiest and the most powerful economy in the community — to bail out individual institutions. That is the problem and if, the fear is that if the stress test identifies individual European banks and the governments of the country in which those banks are headquartered cannot, have not the resources to bail them out, that will make matters a lot worse.

CHIOTAKIS: All right, the stress test goes global. Stephen Beard joining us from London. Stephen, thank you.

BEARD: OK Steve.

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