Bloomberg News

EU Could Gain Power to Order Bank Stress Tests Under Draft Law

February 22, 2012

Feb. 20 (Bloomberg) -- European Union regulators in Brussels would gain additional powers to seek banking data and order financial-system stress tests under draft legislation to tighten control over budgets in the 17-nation euro region.

The measure is part of a two-pronged budget oversight proposal that the finance ministers of all 27 EU nations are slated to discuss tomorrow at a meeting in Brussels. Denmark, which holds the EU’s rotating presidency, aims to reach a preliminary agreement as a basis for negotiations with the European Parliament.

The European Commission, the EU’s regulatory arm, could request countries to offer detailed banking data on a regular basis, accompanied by an assessment of potential vulnerabilities by national supervisors, according to a copy of the draft legislation obtained by Bloomberg News. The EU also could order stress tests, which analyze how a bank would react to various financial shocks, and it would monitor assessments by other regulators.

The draft places more oversight powers with the commission than the commission’s original proposal, which specified a more prominent role for the European Banking Authority. The document says bank supervisors should “assess the resilience of the financial sector to various macroeconomic and financial shocks, as specified by the commission and the European Central Bank” and other relevant authorities.

The commission in November proposed adding the right to screen national budgets earlier and more closely monitor nations such as Italy where rising borrowing costs threaten financial stability. The EU also asked for tighter fiscal surveillance of nations such as Greece, Ireland and Portugal after they exit rescue programs.

If adopted, the new measures would apply to countries whose financial stability faces “serious difficulties.” They also would require countries to submit to more oversight of their budget planning as part of efforts to correct “excessive deficit” conditions.

Last year, European governments gave final approval to a package of six laws that make commission-backed sanctions more automatic against euro-area nations that breach deficit and debt limits. In a report last week, the EU said 12 nations need in- depth reviews of their macroeconomic imbalances.

--With assistance from Jim Brunsden in Brussels. Editor: Patrick G. Henry

To contact the reporters on this story: Rebecca Christie in Brussels at rchristie4@bloomberg.net

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net


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