BUSAN, South Korea (Reuters) - Europe is close to completing stress tests on its banks to gauge their ability to withstand a market slump and the results should be published to help restore market confidence, top European Central Bank officials said on Saturday.
Washington has been urging Europe to conduct such tests in the belief that publishing similar assessments of U.S. banks heed bolster confidence on Wall Street and prodded banks to raise needed extra capital.
The ECB said last week that euro zone banks faced potential writedowns totalling 195 billion euros by the end of 2011.
Speaking after a meeting of Group of 20 finance ministers and central bank chiefs, ECB President Jean-Claude Trichet said he expected the authorities to take stock of the stress test exercise done according to guidelines from the ECB and the EU’s executive, the European Commission.
“I expect appropriate communication will take place at that moment,” Trichet told a news conference.
The tests are being conducted by the Committee of European Banking Supervisors (CEBS) which is made up of the EU’s 27 national bank regulators.
The results will be passed on to EU finance ministers.
Details of a previous test were made public only in broad terms with no reference to individual banks.
Mario Draghi, the Bank of Italy governor who heads the Financial Stability Board, said Europe should take a leaf out of Washington’s book and publish the results.
“The decision of the U.S. government to undertake these tests last year and publish them had a very beneficial impact both on the market and on the banks themselves,” Draghi told reporters in Busan.
“It clears the air and basically puts the banks in a condition they would be able to raise capital. I think we should aim at doing the same,” said Draghi, who is also a member of the ECB governing council.
U.S. Treasury Secretary, Timothy Geithner, urged Europe to make further efforts to restructure and recapitalise its banks.
In response to a question on whether Europeans should take additional steps, such as disclosures of stress tests, Geithner said the basic commitment to transparency in America’s bank stress tests had been critical to recapitalising banks.
“Markets work better when people have a better sense of how to assess risk, markets work better when they’re not operating in the dark,” Geithner told a news conference in Busan.
European banks needed to undertake a serious effort to improve their transparency, Draghi said.
Italy’s banks are properly capitalised and not under threat from market volatility due to worries over the economic problems of Hungary and Greece, Draghi added.
Reporting by Huw Jones, Sophie Taylor and David Lawder, Writing by Alan Wheatley; Editing by Tomasz Janowski