BOE Seeking Exemption From European Bank Stress Tests in 2014
Bloomberg: The Bank of England is seeking an exemption from European Union stress tests to spare U.K. banks the burden of two check-ups as it prepares to conduct its own exams next year.
The BOE is trying to convince the European Banking Authority that its own planned tests on U.K. banks are “sufficiently rigorous” to avoid having to carry out separate checks using methods set down by the EBA, Jo Paisley, director of risk analysis at the BOE’s Prudential Regulation Authority, said at a banking regulation conference in London.
The U.K. stress tests will take place against an unprecedented series of financial-stability exams by the European Central Bank, EBA and national watchdogs as the bloc prepares to hand supervisory powers over around 130 banks to the Frankfurt-based ECB. The EBA, set up in 2011 to harmonize rules across the 28-member EU, is scheduled to reveal the blueprints for its tests in January.
“It’s early days, but there is a dialog,” Paisley, who is responsible for carrying out the tests at the PRA, said in response to a question at a banking conference on Dec. 3.
The BOE’s Financial Policy Committee recommended earlier this year that banks be tested for their resilience to economic shocks. The first exams will take place next year and cover Britain’s eight biggest lenders.
“It’s against the interests of regulators to create asymmetry,” Alessio Balduini, managing director for stress testing and asset-quality review at Moody’s Analytics, said in a telephone interview. “I don’t think that opting out is going to be an option for the bank.”
Credit Crisis
Europe’s leaders entrusted the Frankfurt-based ECB to oversee the financial system to restore confidence in the region’s banks after the credit crisis of 2008 and Europe’s sovereign-debt debacle triggered the continent’s worst recession since World War II.
The BOE favors a more “detailed approach,” while the “EBA has to strike a balance between what they have and what they can get,” Balduini said.
Fewer than half of the banking stress tests carried out by EU supervisors since the start of 2012 conformed to all of the standards set by the EBA, the bloc’s top banking regulator said in a study published last month.
About 48 percent were found to have “fully applied” the European Banking Authority’s guidelines on how to carry out the exams, while 35 percent mostly used the standards and 12 percent only partially applied them, the regulator said.
The PRA took over U.K. banking regulation this year from the Financial Services Authority, which was blamed by lawmakers for failing to prevent the financial crisis in 2008 and subsequent bailouts of Lloyds Banking Group Plc (LLOY) and Royal Bank of Scotland Group Plc.
Stress tests will form part of its more intrusive approach to supervising lenders, in evidence when the central bank ordered the five largest U.K. lenders in June to plug a 13.4 billion-pound ($22 billion) capital shortfall by the end of the year.
reporter on this story: Ben Moshinsky in Brussels