PARIS (MNI) – The methodology for European bank stress tests will
be finalized in the coming weeks and is likely to maintain a distinction
between banks’ banking and trading books, European policymakers said
following the G20 meetings on Saturday.

There has also been no final decision on how detailed the public
release of stress test results will be, they said.

“The methodology will be completed in the coming weeks. Actual
testing is likely to take place in April so we will be ready for the
[release of test results] this summer,” Commissioner for Economic and
Monetary Affairs Olli Rehn said. Rehn also noted that Ireland was
following a different schedule, with stress tests expected to be
finished in March.

European Central Bank President Jean-Claude Trichet noted that
“stress tests are a work in progress.” However, he said that to his
knowledge, “this difference between the banking book and the trading
book is the appropriate concept to be used in these circumstances, so to
my knowledge there was no particular change in this regard.”

Distinguishing between the trading and the banking books could mean
that the tests will ignore the majority of banks’ holdings of sovereign
debt, since most Eurozone government bonds are held on the banking
books.

German Finance Minister Wolfgang Schaeuble said that “following the
experience of last year, we support making a new stress test as broad
and as strict as possible.”

“But to prevent stress tests from producing more damage than good,
we are ready to consider and discuss what of the tests will be published
and what not,” he added.

Bundesbank President Axel Weber also took a cautious stance on
detailed publication of test results, particularly with respect to
liquidity.

The new test should also look at banks’ liquidity, Weber said, but
he added that this does not automatically imply the data will be
released, let alone that details for individual institutions will be
made public. “Here important discussions are ongoing.”

“If you ask me for my personal opinion, I would think that when it
comes to these very sensitive data, one has had to handle
institute-specific information carefully.”

The comments from Germany’s two top financial policymakers suggest
that tests may not be as transparent as markets have called for.

In the official communique released Saturday afternoon after the
G20 meeting, central bank governors and finance ministers reaffirmed
their “commitment to more effective oversight and supervision, including
regular stress testing of banks building on the Basel Committee’s
principles.”

The statement also said that Basel III rules will be implemented
fully and within the agreed timelines and that the Financial Stability
Board’s recommendations on OTC derivatives and on reducing reliance on
credit rating agencies’ ratings will be enforced.

Leaders encouraged the FSB to press ahead with work in other
fields, including new rules for systemically import financial
institutions (SIFIs) and better supervision for the shadow banking
system.

–Frankfurt bureau, +49-173-6529-331; jtreeck@marketnews.com

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