–Re EU Stress Tests:EU Authorities Understand Importance Of Transparncy

By Brai Odion-Esene

WASHINGTON (MNI) – Federal Reserve Governor David Tarullo argued
Tuesday that certain aspects of the Wall Street reform bill, such as the
rule generally banning proprietary trading or the limits on bank size,
should be a source of strength rather than a disadvantage for U.S. banks
vs. their international counterparts.

Tarullo also assured members of a Senate Banking subcommittee that
European Union authorities understand the importance of full
transparency leading up to the publication of the stress test results of
European banks.

During the question and answer session during a hearing by the
Security and International Trade and Finance subcommittee of the Senate
Banking Committee, Tarullo said it is too early to predict what impact
the financial regulatory bill will have on the banking industry.

“I think it’s difficult to say in advance whether the outcome of
all of this (financial reform) will be more expertise … development of
new approaches, development of new markets in the United States, or
whether it will be a case of some of our large institutions saying ‘Gee
we can’t compete with what some of the universal banks are doing.'”

Tarullo added that based on history, “I don’t think there is any
particular reason to believe that they’re going to be at a competitive
disadvantage.”

The reason behind this belief, he argued, is that the most
important characteristic of a financial institution has always been its
safety and soundness, and if investors as well as counterparties believe
it to be safe and sound.

The Dodd-Frank Act Tarullo said, makes it clear to the market that
there will not be public bailouts forthcoming should a large financial
institution get into trouble.

So banks will have to stand on their own, the Fed official
continued, and to do so will require operating in a safe and sound
manner.

“And if they do, they will have advantages in the market,” Tarullo
declared.

Asked by one committee member how clear EU authorities will be when
they publish stress test results of 91 European banks on July 23,
Tarullo said while he does not know the level of detail that will
accompany the results, EU officials are aware that they cannot be
ambiguous when they release their findings.

“I do think that the European authorities understand the importance
of transparency in conducting a successful set of stress tests,” he
said.

European Union heads of state agreed last month to make the results
of bank stress tests public in a bid to shore up investor confidence in
banks. Ninety-one banks have undergone stress tests, representing around
65% of all the banking assets in the EU.

The announcement of the results will be staggered, with aggregate
information and individual overview data for each of the 91 banking
institutions being tested to be release July 23, followed by more
details two weeks later.

** Market News International Washington Bureau: 202-371-2121 **

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