ALL MAJOR European banks must be tested in exactly the same way if the stress tests are to be worthwhile, the European Banking Authority (EBA) said yesterday.
The agency warned that using different rules in different countries will make it impossible to compare the strength of banks across the EU, and undermine faith in the tests.
Two previous studies have been carried out, but national regulators were allowed to make judgements on what counted as a bad loan, meaning some weak banks passed the tests and investors could not trust the results.
However, the national authorities will still have some leeway in the emphasis they put on certain asset classes, based on their significance and risk for each bank being studied.
The asset quality review should be completed by the end of October next year, the EBA said.
Analysts welcomed the move to harmonise the review across the Eurozone countries and the 11 non-euro EU nations.
“These standards will greatly assist the European Central Bank when it assumes its role as single supervisor in September 2014, as the common definitions will allow for the comparison of banks’ losses, impairments and provisions across different countries, thereby covering 85 per cent of total EU banking assets,” said Alessio Balduini from Moody’s Analytics.
The EBA will publish the full plan for the review tomorrow.