May 15, 2017 / 1:04 PM / 2 months ago

UPDATE 1-ECB's Nouy flags "additional discussions" about Monte dei Paschi losses

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By Francesco Canepa

FRANKFURT, May 15 (Reuters) - A failure to review Monte dei Paschi di Siena's assets before stress tests last year is opening up "additional discussions" about whether private money covers all losses it incurred, the European Central Bank's chief supervisor said on Monday.

Based on the stress test result, the ECB - as the euro zone's top banking watchdog - set Monte dei Paschi's capital shortfall at 8.8 billion euros ($9.65 billion) in December, when the struggling Tuscan bank applied for a 'precautionary recapitaliation' by the Italian state.

The figure had been criticised in Italy for being too high.

Monte dei Paschi must cover any incurred loss with private money while it is allowed to tap the public purse for potential losses that it would suffer under the adverse scenario of the stress test. The latter were estimated at 6.6 billion euros.

"The EBA (European Banking Authority) stress tests on which this (Monte Paschi's capital shortfall) is based were not comprising an asset-quality review before the stress test," the ECB's Daniele Nouy told a conference in Frankfurt.

"So this is opening additional discussions to see whether incurred losses are really covered by private money."

Monte dei Paschi was not immediately available to comment.

The EBA and ECB carried out a sector-wide deep dive into euro zone banks' balance sheets in 2014, when the Frankfurt-based institution took over banking supervision as part of Europe's response to the financial crisis.

When Greek banks applied for precautionary recapitalisations the following year, they had to undergo an asset-quality review first, as did firms which started to be directly supervised by the ECB in 2015 and 2016.

But this was not deemed necessary last year as the banks had already been supervised by the ECB for almost two years by that point. (Additional reporting by Silvia Aloisi in Milan; editing by John Stonestreet)

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