Bloomberg News

EU Said to Plan Releasing Stress Tests When Markets Closed

June 22, 2011

(Updates with capital benchmark details in sixth paragraph.)

June 22 (Bloomberg) -- The European Union’s top securities regulator is recommending the release of the bank stress-test results at night or on a weekend when global stock markets are closed, according to a person familiar with the situation.

The European Securities and Markets Authority wrote to the European Banking Authority, the London-based EU agency carrying out the tests, calling for publication of results while markets are shut, said the person, who declined to be identified because the talks are private. While a date for the results hasn’t been set, regulators expect them to be released in mid-July, the person said.

The stress-test results were published on July 23 last year while U.S. markets were still open. If it opts to release the data on a weeknight, the EBA has a two-hour window to coordinate publication. U.S. markets close at 9 p.m. U.K. time and the New Zealand exchange opens two hours later.

“Like any market-sensitive announcement it should be done when the markets are closed,” Fred Ponzo, managing partner of capital markets consultants Greyspark Partners, said in a telephone interview. “Doing it when New York, London, Hong Kong and Tokyo are closed is just good practice.”

Ninety-one banks will be expected to maintain a Core Tier 1 capital ratio of at least 5 percent under the stress-test scenarios, the EBA said. That capital measure is stricter than last year’s assessment, which had a pass rate of 6 percent Tier 1 capital, a measure of financial strength that encompasses a broader range of securities.

The regulator has disallowed lenders counting in their results some types of non-voting capital, known as silent participations, which are permitted under German rules.

Officials at ESMA and EBA declined to comment.

Fresh Capital

This year’s exams will test banks’ resilience to a 0.5 percent economic contraction in the euro area, a 15 percent drop in equity markets and a 125 basis point jump in short-term inter-bank financing costs.

Standard & Poor’s own stress test, published in March, found European banks would need as much as 250 billion euros ($360 billion) in fresh capital if faced with a “sharp” increase in yields and a “severe” economic downturn. In contrast, a survey of 113 investors by Goldman Sachs Group Inc. earlier this month showed they expect banks to raise 29 billion euros after the tests.

--Editors: Anthony Aarons, Christopher Scinta

To contact the reporter for this story: Ben Moshinsky in London at bmoshinsky@bloomberg.net.

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net.


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