Europe mulls plan for more stress tests

EUROPE’S banking watchdog refused to rule out a new stress test of the region’s banks yesterday, but played down expectations that it would act quickly to resolve fears over their risky sovereign debt levels.

The European Banking Authority said it had not announced any new bank stress test. It would not confirm or deny whether it would begin a new test to investigate the vulnerability of banks’ Eurozone bond holdings.

A spokeswoman said the EBA was “reviewing banks’ capital positions” and had “the support of the European Systemic Risk Board”.

But she said it had no new figures on banks’ sovereign debt holdings other than those it published in July, with the results of its previous and now discredited test of their strength.

The EBA also emphasised that its two-day meeting that ended yesterday was routine and nothing to do with the crisis in Franco-Belgian bank Dexia, which is collapsing under the weight of its peripheral Eurozone bond holdings.

“The board of supervisors meeting is an ordinary and scheduled meeting where different items are on the agenda, including, of course, discussions on the current situation,” the spokeswoman said.

“We are aware of the political discussions going on but as EBA, we are a technical body and we are not taking a position at political level.”

The EBA has faced widespread criticism over the past week after it rated Dexia 11 out of 90 European banks on the strength of its finances in July’s stress test results.

But the tests did not look at the effect of a massive slump in the value of banks’ sovereign debt holdings, which is what has brought Dexia to its knees.

It has been locked out of the daily market for inter-bank loans to balance its books because of concerns that its €3.4bn (£2.2bn) pile of Greek debt is now worthless.