Stress tests of the EU banking sector (debate) 
President
The next item is the debate on
the question for oral answer to the Commission on the 2011 stress test of the EU banking sector by Mrs Wortmann-Kool, Mr Gauzès and Mr García-Margallo y Marfil on behalf of the Group of the European People's Party (Christian Democrats) - B7-0216/2011),
the question for oral answer to the Commission on stress tests of the EU banking sector by Mrs Bowles, Mrs Goulard, Mr Sterckx, Mr Haglund and Mr Schmidt on behalf of the Group of the Alliance of Liberals and Democrats for Europe (B7-0219/2011) and
the question for oral answer to the Commission on stress tests of the EU banking sector in 2011 by Mr Bullmann on behalf of the Group of the Progressive Alliance of Socialists and Democrats in the European Parliament (B7-0309/2011).
Corien Wortmann-Kool
Mr President, the Group of the European People's Party (Christian Democrats) has concerns about the European banking sector stress test which is to take place in June, because last year's stress test lacked credibility and the consequences of that were painfully obvious when the Irish banks that passed the test landed in serious trouble shortly thereafter. We need to ensure that the same thing does not happen this year. The question is whether our financial sector is equipped to cope with severe weather. This knowledge is important, if we are to restore confidence in the financial sector.
Hence my question to the Commissioner: what are the most important changes that have been made to ensure that, this year, there is no repeat of the failure of last year's stress test?
Mr President, last year individual countries were able to decide which banks would undergo the stress test, but this year the newly-established European Banking Authority has been charged with ensuring equal criteria for every bank and for every Member State. This stress test will be a test, not only of the banks, but also of the credibility of the new supervision structure. Is the Commission happy with the fact that, while in some countries the stress test will cover 85% of the banking sectors, in others it will cover barely more than 50%? Now, that is a rather remarkable statistic, and I am curious to hear your explanation of this point.
Mr President, we need a robust European crisis resolution mechanism for cross-border banks and while, by obtaining the results of the stress test as early as June, we might be helping banks in difficulty, we will be missing an opportunity, in that we will still not have a European crisis resolution mechanism in place. The PPE Group encourages you to come up with ambitious proposals and you will be able to count on our support here in Parliament.
Sharon Bowles
author. - Mr President, I should like to say this to the Commissioner: the bank crisis resolution is being elaborated at an international level and there are also important competition issues to address, but this does not mean that everything has to wait, in particular when we have a combined sovereign debt and banking crisis.
Last year's tests were weak. We said so then and have repeatedly said that bank stress tests must be credible, robust and transparent. Indeed we need a whole lot more banking transparency in general. So I suggest that we take a lesson from the US and the Dodd Frank Act which requires disclosure, with a two-year time lag, of the US Fed's liquidity provision. There are European names in the US disclosures, and it would be an altogether healthy thing for EU central banks to follow suit with similar disclosure about support during 2008 and 2009 as an accompaniment to the new stress tests.
Now these new stress tests are improved under the EBA but there are still issues being avoided due to guarding and prevarication by Member States. It is about time that the message sank in that feeble political will is not the answer to this crisis and makes solutions more expensive. Why try and hide the full level of banks' exposure to sovereign debt, especially when we all know the likely reality?
There really is no excuse not to stress-test the banking book. Various assets got parked there, under the heading of Hold to Maturity, which would have been moved if they had not lost value. Of course, analysts in the market are well able to read across from stress tests and other information and make an estimate as to what is going on in the banking books. But a darker interpretation, reflecting on some Member States themselves, will be cast by the fact that Member States - and in many cases the supervisors are the culprits - were not bolder incoming clean.
Meanwhile actions are being provoked by the stress tests; banks are seeking capital; some Member States are being proactive in pushing banks to raise capital. But there is no overall plan to address under-capitalisation. This simply does not stack up; surely one thing we have learned in the crisis is that we are very interconnected. If banks do not trust one another and inter-bank lending is frozen, we have a big problem. So please can we have proper disclosed coordination of the response?
But let us not dodge the elephant in the room: this is not just about banks, it is about sovereign debt and the stability of the euro: inextricably linked and overwhelmingly important.
Antolín Sánchez Presedo
Mr President, Commissioner, it is time to carry out European stress tests that are transparent, flexible, reliable and effective: their quality and credibility are a necessary contribution to financial stability and the reestablishment of market confidence.
Stress tests are an essential supervisory tool for evaluating the specific solvency of individual banks and the ability of the system as a whole to withstand stress. The intention of their design and implementation is to calculate how banks would withstand stress under certain adverse conditions, and to detect risks of contagion in order to prevent a domino effect that could lead to collapse.
The European Union has prior experience with stress tests, carried out by the Committee of European Banking Supervisors (CEBS). The experience dates from May 2009, when the Ecofin Council mandated the CEBS to organise stress tests on the financial system, in cooperation with the European Commission and the European Central Bank. The goal was to have a level of aggregated information on the ability of the European financial system as a whole to withstand stress, and they focused on the 22 largest banks. The results were not made public, because the market was very sensitive, it was said at the time. All that was released was a methodology providing for three outcomes - the best, average and worst - and the purpose of the tests was not market transparency.
During their development, in July 2009, guidelines proposed by the Commission on state aid were adopted, establishing that banks needing financial aid to tackle the crisis should also be subjected to stress tests. On 1 October 2009, the aggregated results were sent to the Ecofin Council, which, on 2 December that year, asked the CEBS to provide it with information on the strength of the banking system, for which new stress tests would be carried out.
The results of these stress tests carried out by the CEBS were published, in line with the European Council's June 2010 guidelines. They affected 91 banks in the European Union, but were criticised because they lacked a European focus, because each country decided which banks should be subjected to the tests, because the scenario was different for each country, and because the information provided was often incorrect; we all remember the case of Ireland and the lack of information on some aspects of the exposure to sovereign debt of some countries' banks. Despite improving the perception of some Member States, all this did not succeed in re-establishing confidence within the European Union.
These are the circumstances in which the time has arrived to suggest a new round of stress tests, but in a totally different situation, with new European supervisory authorities. For the first time, there is a new European supervisory framework with experience of the two previous tests, enabling the promotion of transparency, the promotion of reliability and, clearly, the promotion of effectiveness, which is the key aspect of these third tests.
Obviously, the first thing we want to know is what will be done to prevent the errors made in the two previous tests. Secondly, we want to know what will be done to cover and capture the potential for significant risk in all the Member States. Adequate diagnosis is necessary. The method also needs to be developed in line with the banks' various business models and structures, so the stress tests need to be able to provide the information needed to take appropriate action.
This is a very important time, because the new financial supervisory authorities are starting to operate. On 18 March, the European Banking Authority published an executive summary containing the methodology, and we would like to know, when the European Council thought that the information should be published, what measures...
(The President cut the speaker off)
Michel Barnier
Mr President, I thank Mrs Wortmann-Kool, Mrs Bowles and, just now, Mr Sánchez Presedo for their three questions concerning an extremely important subject, namely the credibility of the stress tests for banks.
Honourable Members, we are in a situation where the financial industry is slowly recovering from this crisis, an unprecedented struggle - even though, for some banks, the crisis already seems to be over. We have not yet learned all the lessons from this, and we are all engaged in an important legislative task.
In order to get to grips with this crisis and the lessons that we must learn from it, we need a supervisory framework, and we have had one since 1 January, thanks to you in particular. We need tools for anticipating problems as well as better governance in each of these establishments. We also need better capitalisation, and we will come back to that. Then, we should be measuring, taking the temperature, constantly taking the pulse. That is why, as some of you said just now, we need reliable measuring instruments. The stress test is a key measure and a key tool in this context, and not only have we discussed it here, we have also discussed it on many occasions - and as recently as April, in fact - with the finance ministers in the Council.
As you said, last year's stress test was clearly insufficient, and the Commission itself has said this on numerous occasions to the new supervisory authority, the European Banking Authority (EBA), which coordinates the test in cooperation with national supervisory bodies. You are therefore right to wonder about the quality and, I would say again, the credibility of the new 2011 tests, which began a few weeks ago in April, and I would like to respond to your questions and to give you our analysis on five points.
Firstly, as you wanted, the stress tests for 2011 have undergone genuine improvements, particularly in six areas that I would like to inform you about briefly.
1. The adverse macroeconomic scenario that is applied simulates conditions much more severe than those of the 2010 scenario. Among other things, it adds severe real estate shocks, as well as an explicit impact on the cost of financing.
2. The coherence of the exercise has been very significantly improved thanks to a consolidated methodology upstream and a strict assessment subject to the adversarial principle downstream; in other words, peer review.
3. Under the principle of increased transparency, the dissemination of the results in June will be improved and accompanied by a separate detailed publication of the bank balances. That will also include the dissemination of sovereign debt holdings as well as capital structure.
4. The banks will also be tested on the basis of an upper capital threshold, core tier one.
5. The dissemination of the methodology prior to the publication of the stress test results will improve the general credibility of the exercise.
6. Finally, coordination among the national authorities responsible for applying what we call 'backstop' solutions, which are to be imposed on banks that fail this test, has been significantly enhanced and improved.
That is the progress that has been made, the improvements on last year's tests that you quite rightly hoped for and which have been made this year.
A second point that I would make, honourable Members, is that we must have much more clarity on exposures in relation to sovereign debt. Several of you - in particular, the Group of the Alliance of Liberals and Democrats for Europe - asked me about the methodology applied in this context, as Mrs Wortmann-Kool did just now. The adverse scenario proposed by the banking authority, the EBA, envisages a significant shock in the form of price fluctuations of sovereign debt and the cost of its financing.
As you noted, however, this scenario does not extend to cases in which repayment of sovereign debt is defaulted on. This is because the shock envisaged by the EBA would only have an impact on sovereign debts held in the banks' trading book.
Nevertheless, there is an explanation behind this choice that was made this year. I would repeat that the stress tests simulate extreme scenarios, but ones which must nevertheless be considered plausible. Today, in the context of the recent introduction of the new European Financial Stabilisation Mechanism and the European Financial Stability Facility, which provide several governance tools for the euro area, we think, quite reasonably - and the European Banking Authority thinks so too - that it is much more useful now to ensure complete transparency of exposures relating to sovereign debt as they appear in the banking book and the trading book. The dissemination of these will therefore be much more detailed than last year.
Thirdly, you have also drawn our attention to the need for more consistent implementation of stress test scenarios throughout the Union. This is indeed essential for the credibility of the exercise. The Banking Authority is making considerable efforts by carrying out a strict assessment of the results of this exercise. This will ensure consistency between the methodologies applied by the banks as well as a convergence - an appropriate one, I think - of the ways in which the macroeconomic scenarios are retranscribed into parameters of respective risks. This approach does not prevent the banks from reflecting certain specific aspects of their trading book or a particular management model.
There is another element which is essential for the consistency of the exercise: the use of common definitions for the capital thresholds according to which the participating banks will be assessed. The reference for capital announced by the EBA is based largely on the current provisions of the Capital Requirements Directive, which already takes into account the different banking structures and the management models which exist in Europe.
Fourthly, Mrs Bowles and other speakers asked us about the differences in coverage of the banking sector within the Union. The Banking Authority has tried hard to develop a sufficiently representative sample, both at national level and across the entire European Union, whilst ensuring that the exercise remains manageable. Honourable Members, the banks tested during the 2011 exercise account for 65% of the European banking sector in terms of total assets. In each Member State, the sample was determined in such a way as to cover at least 50% of the total assets of the national banking sector.
With that, I come to my fifth comment, mentioned by Mr Sánchez Presedo in particular, concerning the question of the corrective measures - the backstops - that banks could expect if they turned out to be vulnerable or potentially undercapitalised. These banks will have to implement appropriate measures to remedy their weaknesses and above all to turn to the private sector by financing themselves directly from the markets or by selling assets. If, and only if, these measures turn out to be insufficient, public support could be envisaged, on condition, of course, that it conforms to the European State Aid Regulations. My colleague Mr Almunia and his entire team are working upstream with the Member States on this very question.
If public support is needed, the banks benefiting from it should, pursuant to the December 2010 communication on the application of State Aid Regulations to support measures in favour of banks, provide the Commission with a restructuring plan which is appropriate for dealing with the problem, in order, in particular, to consolidate and restore their long-term viability.
Finally, you quite rightly hoped for a strategy to recapitalise and restructure failing banks, as Mrs Ferreira proposed in her report on crisis management. As you know, we are working, honourable Members, on a legislative framework on the management of the crisis, the banking resolution, which we have had the opportunity to discuss several times. My aim is to give supervisory bodies and the future resolution committee for these cross-border institutions a toolbox in order to take preventative measures and to prevent risks that are diagnosed fairly early on from turning into crises, and to prevent the crises themselves from turning into catastrophes.
Therefore, to ensure - and to finance, if necessary - early intervention, and to ensure that the banks pay for the banks: that is what we consider to be an orderly resolution, and I intend to present this proposal both to the Council of Ministers and to you yourselves before the end of the summer.
Those are the technical responses that I wanted to provide, in as precise a manner as possible, to the three extremely relevant questions that were asked at the beginning of this debate.
Jean-Paul Gauzès
Mr President, Commissioner, as you acknowledged just now, last year's tests have not had the anticipated effects. We ought to avoid the same errors of conception and implementation. The fields of investigation must be consistent and similar. There will be no stabilisation if the diagnosis is not correct. Governments must be aware of that.
This being so, the tests must quite clearly be realistic. The solutions that you have just given us, in a particularly detailed fashion, are of a kind that can provide an answer to our questions. It is now the job of the European Banking Authority, in supervising and examining the conclusions of these tests, to give a first test of its effectiveness.
The tests must allow us to better define the potential recapitalisation needs of the banks and to take the measures that you have just mentioned. However, performing credible stress tests is the best way to calm the financial markets and to limit the influence of credit rating agencies and the negative effects of their decisions on the whole of our economy.
The credibility of the results of these tests can end the dependency on these agencies, or at least can reduce it. The supervisory authorities have no choice but to ensure that the tests are successful; that is, that they provide convincing evidence.
Let me use my allotted time, Commissioner, to draw your attention to the fact - in my opinion, a serious one - that the legislation relating to credit rating agencies, which has now entered into force, has not been applied, and that the authorities to which these agencies submitted their files did not take steps to inform them of the requirements of the agreement. We planned a transitional period pending the establishment of the European Securities and Markets Authority, yet today we are continuing to act as if nothing had happened.
Anni Podimata
Mr President, Commissioner, if there is one thing we have learned in Europe from the recent financial crisis, it is that full capital adequacy of our credit institutions and effective supervision of the level of risk they undertake are key points in overall economic - not just financial - governance. Lasting and cohesive restoration of growth in the European economy necessarily depends on the restoration of confidence in the banking sector and the restoration of a financial system in general that functions smoothly and transparently and resumes its basic role as a source of finance for the real economy.
As we have seen in practice, and as various speakers have pointed out, last year's stress tests did not achieve their objective of highlighting which banks enjoy the necessary confidence of their consumers, their creditors and the national regulatory authorities.
This year, we are in a different situation. The stress tests will be carried out by the new supervisory authority, the European Banking Authority, and we must avoid last year's failure at all costs. This will basically depend upon imposing common stress criteria to banks, which are interpreted and applied uniformly and broadly, so as to cover the various risks to each national market.
Commissioner, this is, without doubt, the top priority at the stress test stage; however, I would also point out that, in the second stage, full and fundamental preventive supervision will need to include appropriate mechanisms to address what, to date, has been a particularly shadowy banking sector.
Sylvie Goulard
Mr President, Commissioner, a lot of things have been said about methodology. You have responded in detail. I would just like to make a brief comment about what is going to happen after the stress tests, by echoing slightly what Mr Gauzès said, which is that one cannot indulge oneself by adopting laws: they have to be adhered to.
For my part, I see these tests as supplementing the economic governance package. We can do whatever we like with regard to sovereign debt, but if we do not clean up the banking sector, we will achieve nothing. I simply wanted to draw your attention to what is going to happen and to how these famous backstop measures will enable action to be taken at the end of the stress tests.
I also wanted to draw your attention to what happened during the hearing with Mervyn King and Andrea Enria, whose very determined action we applaud. They came to see us in their capacity as Vice-Chairs of the European Systemic Risk Board, and we had the pleasure of hearing, from Mervyn King in particular - it was rather amusing, if you recall last year's negotiations, Commissioner - that the safeguard clauses, which the Member States delighted in adding to the package developed by the Commission, would not prevent them from following the recapitalisation guidelines given by the European Banking Authority (EBA).
I just wanted to bring that small point to your attention. From a systemic point of view, the Systemic Risk Board itself believes that this is important, and I believe that if the quality of the work done by the EBA, with your support and under the supervision of the Systemic Risk Board, means that we can happily shelve those absolutely ridiculous safeguard clauses that the Member States sought to include in the supervision package, then we will have taken a step forward. I therefore hope that the Commission and the Board will be very keen to ensure that concrete measures are taken by the Member States, large or small. Spain has set an example by doing a certain amount of work; we hope that the others will follow.
Vicky Ford
on behalf of the ECR Group. - Mr President, last summer's stress tests were meant to restore confidence in banks. This was Europe's attempt to tell global markets to 'calm down, dear'. It failed. Nineteen weeks later, the Irish banks collapsed and taxpayers across Europe were forced into a bail-out, and just last week we learnt that EUR 12 billion of the proposed Portuguese bail-out is for their banks. The sovereign debt crisis will not be solved until the bank crisis is solved - and the bank crisis will not be solved until markets are confident in providing capital and liquidity to banks.
Stress tests are meant to stress risks. To assuage market concerns they must stress the risks that the markets are concerned about, and right now the markets are concerned about sovereign debt levels. Refusing to test the sovereign debt held on the whole bank balance sheet will not restore confidence. The European Banking Authority is of course caught between a rock and a hard place: publicly admitting that the risk of a write-down exists may perpetuate the risk of it occurring, but denying that it exists at all would be downright irresponsible for a regulator.
And then there are the trillion dollar questions. Behind closed doors the argument has focused on the numerator. What type of capital do banks hold? The longer individual countries fight for their own opt-outs, the more everyone becomes aware that not all banks are equal and market concerns multiply. But we should also be concerned about the denominator. What is the risk of the assets on the balance sheets, and can you trust the risk weights applied to those assets? If US banks have risk weights 50% higher than European counterparts, are Europe's banks being allowed to fundamentally misrepresent the risks on their balance sheets?
The financial crisis should have taught us all to value transparency. For depositors, investors, borrowers and taxpayers these stress tests do not offer transparency and that is a travesty.
Sven Giegold
on behalf of the Verts/ALE Group. - (DE) Mr President, Mr Barnier, ladies and gentlemen, the reason why the issue of the bank stress tests is of such decisive importance and is regarded so critically by our citizens is because the banks are at the centre of this crisis. It was the banks who invested huge amounts of money without considering the risks, creating property bubbles in a number of Member States, who are now stricken by this crisis. Something that we always believed to be impossible, namely that the markets might be less well informed than many external observers, has actually come to pass and the markets got things severely wrong. It is evident that the banks that caused the crisis were unable to make the right decisions during the crisis.
It is now also apparent that national debt has also increased enormously during the downturn, firstly due to the cost of rescuing the banks and the associated guarantees and secondly, and more importantly, due to the cost of the downturn itself. Thus, the central question is: are any serious lessons being learned from the banking crisis? It is not simply the case that the banks are responsible for what happened in the past, but also for present difficulties, because the markets are still not operating correctly.
A total of EUR 427 billion in outstanding demands have now accumulated between the central banks in the accounts of the European Central Bank system and the TARGET2 payment transaction system; this is because the system has intervened between the central banks in place of the non-functioning markets.
Because of the weakness in the banking system, we are hesitant about introducing the debt restructuring measures urgently needed in the weaker countries. To put it in a nutshell: people in Greece, Ireland and Portugal have the feeling that they are suffering because the structure of our bank system is weak. European stress tests have been carried out over the last two years. We believed that we would finally find out the truth. As has already been said many times, the 2010 stress tests were weak, particularly in relation to government risks, which were ignored almost entirely. These bank stress tests did not reflect reality.
The picture is very similar in 2011. Although we are grateful for your contribution Mr Barnier, you have not explained why the risks associated with government bonds are recorded in the trading book, but not in the banking book. The explanation is always the same: we always have the rescue packages to fall back on. However this is just an audacious way of pre-empting a political decision. After all, the rescue packages cannot simply be taken for granted, but must first be approved by the national parliaments. If these rescue packages are quoted as the reason why risks are not priced correctly, then in practical terms this is like nationalising private risk as a fait accompli.
What is more, we still do not have a proper stress test for the insurance market. I am calling on you, Mr Barnier, also to take a close look at this area. I am disappointed that the European Banking Authority, which we established and which is responsible for the stress tests, actually failed its own stress test.
Mr Barnier, please stay on track and pursue this matter with greater urgency. This whole issue seems to illustrate the words of Bertolt Brecht when he said: founding a bank is a much worse crime than robbing one. However, he was wrong. We must now learn that carrying the burden of the banks' debt is much worse.
Paul Murphy
on behalf of the GUE/NGL Group. - Mr President, the most fundamental weakness of the proposed stress tests has now been referred to. It is the possibility of widespread sovereignty faults. Surely, this is a very likely development, given the incredible level of debts that have been loaded onto economies that are simply unable to pay. For example, the Irish State is on track to owe EUR 750 billion by 2014, and we have a government debt that is more than EUR 120 000 per worker.
Irrespective of a potential cut in the interest rate and our so-called bail-out, this is unsustainable and the Irish State will default. I understand that German banks are exposed to Greece, Ireland, Portugal and Spain, the so-called 'PIGS', to the tune of EUR 400 billion. French banks are exposed to the tune of EUR 260 billion and British banks EUR 300 billion. This massive exposure explains the vicious austerity applied by the Commission and the European Central Bank to working people in the peripheral economies.
It is my understanding that the stress tests will assume that the funding needs of the banks remain stable. Given the potential for a deepening of the crisis, this is unlikely to be the case. For example, EUR 34 billion left the six Irish domestic banks in the last three months of 2010, forcing them to rely on what is supposedly short-term funding from the ECB to the tune of EUR 160 billion.
On the restructuring of the banking sector, surely the most fundamental lesson that has to be drawn from the experience of the last number of years and the major crisis is that the major financial institutions and banks cannot be left in private hands. The pursuit of profit by these private institutions has played a significant role in wrecking our economies, for which working people have paid a terrible price. The major financial institutions, the major banks, must be taken into democratic public ownership. The dictatorship of the financial markets must be ended, and their massive resources should be used to benefit ordinary people through the granting of loans to small businesses, affordable mortgages to help homebuyers, and so on.
Jaroslav Paška
on behalf of the EFD Group. - (SK) Mr President, on 18 March the new European banking authority published the scenarios and the stress tests through which it wishes to check European banks.
If we want the experts to accept the results of these tests, we must avoid the superficiality and inconsistency which characterised the banking sector tests of July 2010. In view of the fact that the credibility of the entire European financial sector will probably be assessed according to the stringency of these tests, it would be good for the tests to be as comprehensive as possible, and for them to reflect in their stringency the actual risks the financial sector may face in the current period. In my opinion, these tests should not therefore avoid an adequate assessment of the exposure of the banks towards specific state debts, or the debts of other banks, in order to take account of the worst case scenarios in the tests, such as a country becoming bankrupt, for example. We must also ensure a balanced and fair approach towards assessing the various banking structures and business models in the individual Member States, and try to ensure that the new stress tests relate, as far as possible, to the entire banking sector in each Member State. Only thus will we regain the confidence of the financial experts.
Elisa Ferreira
(PT) Mr President, Commissioner, in the analysis of the banks carried out in 2010, it was uniformly recognised that one of the problems of these tests has been the predominant national logic, whether with regard to methodology, to diagnostics or to the choice of criteria. Later, in the report that you kindly mentioned, for which I was rapporteur, this Parliament asked for the strengthening of a European dimension for managing bank crises.
In the meantime, the Systemic Risk Board and the European Banking Authority (EBA) have been set up, indicating that finally, we were going to give the banking sector a European dimension.
However, the stress tests that we are discussing were referred to as follows by the European Council on 24 and 25 March. I will read it in English, because that is the document I have.
'Member States will prepare, ahead of the publication of the results, specific and ambitious strategies for the restructuring of vulnerable institutions, including private sector solutions ... but also a solid framework in line with State aid rules for the provision of government support in case of need.'
(PT) Therefore, as regards the stress tests, what we are doing at the moment - without any clear, comprehensible framework harmonising the various national practices - is again recommending that it is up to the Member States: we are again reinforcing the national dimension of approaching the solution and of correcting the stress tests on the banking sector.
This leads me to a fundamental question. With this type of methodology, will we not lose a golden opportunity to finally create a European, rather than national framework to solve the problem of regulation?
Olle Schmidt
(SV) Mr President, we are living in difficult times. The financial crisis has shown us how important it is for citizens to have confidence in the banks and the payment systems. Stress tests for the banks are therefore an important instrument for examining the resilience of the banks to unexpected shocks. Financial stability is about how well capitalised the banks are and how much resilience they have. Our experience shows that vigorous tests increase confidence in the banking system and the tests should be tough, credible, comprehensive and have clear requirements. The example of Ireland demonstrates the opposite, unfortunately.
I would like to emphasise the importance of openness and transparency with regard to publication of the results of the stress tests. Publication of the individual tests is very important in order to help strengthen citizens' and the market's confidence in the banks. Just as Mr Barnier said, it is all about confidence.
Future stress tests need to be continually developed in order to include real market conditions and risks. By reporting the level of exposure to sovereign debt, the market players can make their own risk assessments. This is important in order to strengthen the market's confidence in the design and credibility of the tests. The Commission, the European Systemic Risk Board (ESRB) and the European Banking Authority (EBA) should be clear about what the stress tests are intended to show and they should check and ensure that the assumptions of the stress tests reflect the risks.
If the stress tests reveal that any particular banks do not meet the requirements, the Member States must take immediate action. The Swedish experience of expansive banks in the Baltic States demonstrates that the risks can quickly build up as a result of growing imbalances. History has taught us that caution is necessary, but delays or hesitation in the face of unsatisfactory results can be devastating. Thank you.
Philippe Lamberts
(FR) Mr President, Commissioner, ladies and gentlemen, stress tests are the latest thing. We have a deep economic and financial crisis, so we will make our banks take stress tests! We have a nuclear crisis, so let us make our nuclear power stations take stress tests! As if the very idea of stress tests was going to reassure our fellow citizens or the financial market. Because, clearly, everything depends on the possibilities they cater for, and as you said, Commissioner, we cannot say that last year's financial stress tests were very credible from that point of view.
Furthermore, the nuclear stress tests, as your colleague Mr Oettinger acknowledged this afternoon, are also a big joke - they have been so far anyway - since the possibility of an aeroplane crashing into a power station has not been taken into account. I would therefore like to say that, in a case such as that, where an aeroplane crashes into a nuclear power station, there is clearly a default risk.
Commissioner, you say that plausible possibilities should be taken into account, and so we are not taking into account the possibility of a sovereign State defaulting in Europe. I would therefore like to make the following point: either you regard this as a possibility to be rejected, and if so I would say to you that you are in denial, because the figures of the Greek debt and the Irish debt clearly show that, sooner or later, those States are going to have to restructure their debt, or you are playing for time, and if so I would say to you that that is equally irresponsible, because the longer it takes to tackle the issue, the more it will cost society as a whole. I therefore appeal to your sense of reality and responsibility in this matter, Commissioner.
You are an ambitious European; you know that the people whose stress levels are tested every day are our fellow citizens, who know only too well that, until we take the bull by the horns, we will be unable to guarantee their security or the security of the financial market. Taking the bull by the horns today means radically restructuring the finance industry in Europe. I know that you have started, but this also implies the need for a European budgetary federation. We will discuss this point again tomorrow, however.
Othmar Karas
(DE) Mr President, Mr Barnier, ladies and gentlemen, firstly I would like to express my thanks for the detailed answer to my parliamentary question of 8 February on the stress tests as they related to the Irish banks.
We have made something clear today: credibility engenders trust. Also, a serious, upright and determined approach will help us overcome the crisis in credibility. It is for this reason that I am forced to say that I do not believe the last stress test was adequately evaluated. The consequences are unknown. Despite the logical conclusions that you have outlined today, I am still not clear about the consequences of the forthcoming test. For this reason I have three questions.
My first is this: Commissioner, how can you guarantee this time that a long-term view will be taken, rather than the short-term focus applied last time with the Irish banks?
Secondly, is the European public debt crisis deteriorating before our very eyes, as Mr Giegold describes? This deterioration will only be tested in the banks' trading books in the current stress tests. However the titles held by the banks until final maturity are listed in the banking book. Yet the banking book will not be included in the stress test. How can you justify this distinction?
Thirdly, will this not yet again give rise to a feeling that the long-term survival of the banks is guaranteed because our main problem, the state debt crisis, is not adequately being evaluated?
Antolín Sánchez Presedo
(ES) Mr President, Commissioner, ladies and gentlemen I should like to thank you for your answer.
The important thing is to make the proper diagnosis, but also to be able, after the diagnosis, to apply the proper treatment. We therefore need to make the stress tests more transparent and reliable - and we are headed in the right direction - but we also need to make the response more effective.
We need solvent financial institutions, a stable financial system and, above all, the restoration of the flow of credit into the real economy.
Banks that pass the stress tests are not exempt from making every effort to tackle adverse scenarios and to prepare for an increasingly demanding regulatory situation. Banks that do not pass the tests should immediately seek solutions to tackle the situation, and the Member States - those that have not done so already -should adopt initiatives to help them and contribute to their recapitalisation or to seeking means of resolution.
The European Banking Authority can issue recommendations to correct risks detected, so as to identify any institutions presenting systemic risk - which will be subjected to a higher level of supervision - and so that rescue, recovery and resolution procedures can be followed.
You will have our support for those procedures, Commissioner, so that an ambitious European framework can be created even in order to go further, because monetary union requires greater financial integration, but it also requires greater fiscal and political integration.
Theodor Dumitru Stolojan
(RO) Mr President, the stress tests are important for assessing the health of the banking system. However, two conditions are absolutely essential. Firstly, the quality of these tests and the accuracy of the actual assessment process. I would like to mention that the banks have had different business models in different countries. In Romania, as in other countries, the banks were not involved in transactions dealing with toxic assets. On the other hand, however, they carried out expansionist lending based on external resources assigned in the short term and providing funding in the long term. However, the results were the same: losses, particular vulnerability generated in the relevant countries and, obviously, a lack of responsibility for risk management. The second condition is the transparency of the test results which we will apply in the banking systems. This transparency is demanded by both financial markets and citizens.
Olle Ludvigsson
(SV) Mr President, during the turbulent period that we have been experiencing with regard to our public finances over the last few years we have lost our focus on the root of the problem. In our work to rescue the public finances of the weakest countries we have tended to forget that it is the banks that are our biggest problem.
This is the case partly on account of the fact that the long line of disasters in the banking sector is the main reason why the public finances of so many countries are so fragile now and partly because many of the key weaknesses of the banking system still remain. We need to find viable solutions for the public finances of Athens, Dublin and Lisbon. However, these solutions will not be worth very much if we do not at the same time support those European banks that are still not able to stand on their own feet. If we do not make the effort that is needed at this stage to create a sustainable banking sector, it will sooner or later result in a burden on public finances that even the strongest countries will find it difficult to cope with.
What is particularly disheartening in this context is the fact that several countries that currently have robust finances are doing so little to deal with the weaknesses in their own banking systems. They loudly demand that Greece, Ireland and Portugal improve, but fail to do their own homework, despite the fact that they have the resources. That is unacceptable.
It is clear that the ongoing stress test must be carried out in a stringent and transparent way that inspires confidence. It is equally clear that the stress test must be followed up with appropriate initiatives to address the weaknesses that are identified. A common European strategy for this would be very valuable. I expect the Commission shortly to take such an initiative on the basis of the guidelines proposed by Parliament in Mrs Ferreira's report on crisis management in the banking sector. At the end of the day, however, the main responsibility remains at national level. All countries, and the strongest ones in particular, must ensure that they deal with the shortcomings that still remain in the banking system. Thank you.
Thomas Mann
(DE) Mr President, Mr Barnier, the EU stress test for banks conducted last summer is in need of a radical overhaul. It is patently not enough simply to focus on the banks' capital base. The impact of the crisis on the banks' liquidity must also be examined. As a reminder: banks like Lehman Brothers collapsed because they were faced with significant liquidity problems. I fail to understand the debate as to whether or not the results of the liquidity check should be published.
Anyone who insists that the data should be kept secret is undermining the purpose of the test. There is little doubt about what is intended: the aim is to stop the markets from losing confidence in the banks that fail the tests. However the effect of keeping the public in the dark about the results of the tests would simply be to engender even more uncertainty. Rumours and half-truths flourish in such an environment.
Even though people will criticise the new methodology and various parameters, the common objective must be clear. Transparency is essential in order to determine the European banks' susceptibility to crisis. There is an urgent need for broad-based confidence and the banks must play a role in this in their own interests.
Antonio Cancian
(IT) Mr President, ladies and gentlemen, I would like to thank Mr Barnier for the excellent work he is doing. We need to restore stability and confidence, and I think that an enormous effort is being made to that end. The legislative framework for the management of the crisis is providing Mr Barnier with the means to take a range of preventive measures as well as to manage the current situation. We need to watch out for and resist the bureaucratic temptation to create bodies, agencies or other instruments that could complicate life in future.
A coordinated approach within a general European Union legal framework is essential to prevent problems and future financial crises and to allow the banks to operate in a more orderly fashion and under the same conditions throughout Europe. I am of the opinion that, in order to ensure transparency, regulators should be continually developing standard rules and procedures.
I would stress, however, that care must be taken when publishing results. The financial year 2010 showed clearly how sensitive and important the publication of results is in terms of consistency. They can also produce counterproductive reactions in the markets and cause disruption. Attention must therefore be paid to this issue, and it must be taken seriously into consideration.
Seán Kelly
Mr President, banks were once revered in Ireland. Now they are reviled, and there is no need to go into the reasons why. I am here to ask questions rather than give insights, and I have a number of questions.
Firstly, do all banks have to be stress-tested? Secondly, can we be assured that the stress tests from now on will reflect the true position of banks? And thirdly, what authority does the European Banking Authority have to impose its authority on errant banks, banks that are over-exposed, banks behaving recklessly, and so on?
Finally, Mr Gauzès referred to the need to rid ourselves of dependency on the rating agencies. How can this idyllic situation be brought about as soon as possible?
Janusz Władysław Zemke
(PL) Thank you very much for the opportunity to ask a question. I would like to make it quite clear that if it were not for the measures taken by the European Commission and by you yourself, Commissioner, there can be no doubt that we would be worse off today as regards the situation in the European banking system. The situation is very dynamic, however. We have fortunately resolved some of the problems relating to bank liquidity, but new problems and threats are emerging. In connection with this, I should like to ask, Commissioner, if you could give us your current thoughts regarding the threats which are emerging at present, and the threats which we will need to deal with in the near future. I wish to stress most emphatically that some of the problems are fortunately already behind us, but that other problems are constantly emerging.
Mairead McGuinness
Mr President, lest we forget that there are people affected by these problems, I met a young Irishman on the flight to Frankfurt today, on his way to Australia with a one-way ticket, and he is just one of thousands who are doing this because of our economic and banking problems.
Would the Commission accept that the damage done to Europe's credibility by the fudging of the first banking stress tests - and I say this with great regret - is almost irreparable? European Union citizens are looking on in distress at what has happened in relation to banking. We have damaged confidence in the European Union and in the eurozone.
As you know, the Irish banking sector has had its second round of stress tests and the new government has put in place a restructuring plan. The additional capital required was EUR 24 billion. The impact on the Irish economy now is that good enterprises are starved of capital as banks struggle to meet the various requirements. This is an impossible scenario, and I would ask the Commissioner to address it.
Elena Băsescu
(RO) Mr President, the fact that the previous stress tests were not credible makes carrying out the next tests complicated. The crisis in Ireland has altered the new data in the European banking system considerably. In this context, future tests must be much more precise in terms of providing information. The national authorities must apply the action plans already. This would therefore resolve the problems from stress tests in general. We should not expect to see banks failing the test. The new tests should highlight the weaknesses of the banking system, while identifying where the capital needs to be consolidated. I should emphasise the importance of the Commission adopting a fair approach in applying the stress tests in absolutely every Member State.
Finally, I also find useful the information from the Commission on the major modifications it has proposed.
Ildikó Gáll-Pelcz
(HU) Mr President, the importance of this topic is best highlighted by the fact that three MEPs have addressed similar questions to the Commission. This is not an accident, because if we conduct a stress test similar to last year's, which has not managed to restore confidence in the European banking sector, this might damage the credibility of the European Union. The work of ESRB and EBA preparing the test seems to be sound, both as regards its unified methodology and the method used to conduct it.
However, some questions still remain open for me, even after the answer of the Commissioner. For example, does the selection process manage cross-border business and shareholder relations, as well as different business models? Another question is whether it can be stated with absolute certainty that such a series of stress tests will not ignore any bank whose operation might present a risk to the European economy.
Michel Barnier
Mr President, I am grateful to everyone who has taken the floor at this late hour for demonstrating the European Parliament's vigilance, and I would even say its intelligence, on this difficult issue.
Firstly, to come back immediately to the issue raised just now by Mrs Gáll-Pelcz, who talked about the responsibility of the Commission - I am used to facing up to my responsibilities - I would point out that these stress tests that are being performed today have been designed by, and are the responsibility of, the new authority that we have created together, the European Banking Authority. Of course, we are working closely with that authority and we, like the European Central Bank, have helped prepare this new round of tests with the EBA, but it is the EBA that is mainly responsible for this.
Mr Zemke asked a rather broad question about future threats and risks. Firstly, I believe there is no such thing as zero risk, either in this field, or in the environmental field. I think it is very difficult to predict the future, and we know after all, Mr Zemke, that the markets move much more quickly than the age of democracy, than our age, no matter how quickly we move or how quickly and effectively we want to move.
How, though, can we be better prepared than we were four years ago when faced with the crisis that originated in the United States and nearly swept everything away? By creating tools, frameworks for governance, supervision, responsibility, transparency, everything that was lacking, everything that had been part of the very powerful tide of ultraliberalism that first swept through the world in the 1990s, everything that was partially dismantled, too, with the foolish idea that the markets could regulate themselves.
Within the framework of the G20, and perhaps going further in some areas than the G20 had requested, we are today patiently recreating the governance, regulatory, transparency, I was going to say quite simply 'moral' - if I can use that word - or ethical frameworks and tools that have been singularly lacking in the financial market set-up for around 15 years.
That is why your understanding of this situation is important, and why your role in creating proper European supervisory authorities - Mrs Goulard mentioned the European Systemic Risk Board - is very important.
That is why - and this is also addressed to Mr Gauzès, who mentioned rating agencies - we are including this action, the specific topic of tonight's sitting, everything that we are doing patiently, week after week, in the major European financial and economic governance project, and we have more work to do yet. I do not have a problem with using the word federation in the context of this major project; I think it was Mr Giegold who used that word earlier. We need to pool our energies and our policies more, and at times we need to go beyond mere coordination.
I agree with Mr Gauzès on the importance of continuing the reforms in the area of rating agencies. We are working on a third reform, which will complement the previous two. As for the issue that you raised, Mr Gauzès, with regard to excessive dependence on ratings, we are going to get rid of a number of ratings very shortly, at the beginning of July. We are going to get rid of several references to ratings so as to prevent this excessive dependence on ratings by the banks, and not just by the banks in fact. We are going to work on this point, therefore.
Mrs Goulard referred to the comments made by Mr King and Mr Enria, and I have noted them down. I thank her for having drawn my attention to their comments, which demonstrate, moreover, a proactive and changing approach, which I am very pleased about. I should also like to thank her for having mentioned the very important role - and we know how much we owe you, Mrs Goulard - of the Systemic Risk Board. We must work with all these stakeholders and the EBA, and naturally we must have regard for the role of the Systemic Risk Board, so that we apply the stress tests consistently and so that we learn from them.
Ultimately it will be up to the Member States rather than the EBA to learn lessons by putting in place conditions and backstops, which we will be monitoring closely in the period immediately after the stress tests.
When the three European supervisory authorities and the Systemic Risk Board were set up, I said that we were going to test the ground by walking on it. That is what we are doing. I believe that the EBA is doing a good job under the leadership of Mr Enria; the same applies to the other authorities, to the Systemic Risk Board and, Mr Giegold, to the European Insurance and Occupational Pensions Authority (EIOPA). Earlier you mentioned the tests in the insurance sector; the EIOPA is currently preparing a series of tests in that sector, as the EBA did for the banks.
You raised a sensitive and very important issue, Mr Giegold, as did Mr Karas and Mr Schmidt earlier, namely sovereign debt shock. As I have already said, and I will not be saying anything else on the matter this evening, the EBA has been tasked with designing and developing the tests. It felt that a banking book shock was unrealistic, and so there was no point in carrying out tests on the banking book at this stage. All I can say is that we have this dialogue with the EBA, we are determined - Mr Giegold has drawn all the lessons from this new round of tests, just as we drew lessons from the previous round, which was unsatisfactory - and we have an ambition - Mr Sánchez Presedo asked me to show ambition - which is to be demanding and rigorous when holding this dialogue, while respecting the powers and the independence of the EBA, just as we in the Commission demand respect for our own independence. My ambition, Mr Giegold, is to reflect rationally on what we have learnt from this round of tests, which will end in June, and to learn as much as we can from our dialogue with the EBA, in order to improve the following round.
Mr Mann, like you, Mr Giegold, mentioned the evaluation of liquidity risk. As you know, the evaluation of this liquidity risk is not part of the stress test itself, the results of which will be made public. At the beginning of the year, the European Banking Authority announced that it would be carrying out a separate thematic review of the liquidity risks in the EU banking sector as part of its regular risk assessment cycle in the first quarter of 2011. It will therefore address this issue in this parallel context, so to speak.
Mr Karas called on his fellow Members and the Commission to integrate everything that we are doing into long-term strategies, and I would like to say to Mr Karas that this is a general principle to which I subscribe, and it is also the spirit in which I am working with my teams in order to propose all the new legislation that is part of this financial and economic governance that we need. This specifically applies to the issue of governance, to what we are going to do in terms of shareholder liability - we are working from a long-term perspective - and to what we want to do, as I was saying earlier to Mrs Ferreira, with regard to bank resolution. It also applies to another point that I have in mind; although you have not mentioned it, it is one of the reasons for, or one of the causes of, the crisis: the obscene pay and bonuses, which were even higher when more risks were taken, since those taking the risks knew that everyone else would pay for them.
When we review the application of the current guidelines on pay and bonuses, and see where they fall short, I will clearly ensure that, as many of you have requested, they are transposed and applied in every Member State over the coming weeks. When I say that I am considering new guidelines on this issue, it is precisely in order to address one of the causes of the crisis - this crazy risk-taking - and to make those involved in the banking sector more prudent and responsible again.
Mrs Ferreira and Mr Lamberts made the point that the stress tests were inconsistent.I have said what I think about the shortcomings of the previous tests. We need more consistency, we need more Europe in the application of these tests, and that is why the peer review with the EBA will also be very useful.
Regarding the issue of a harmonised bank resolution framework, that is precisely what we are working on, Mrs Ferreira. I can confirm to you that we will be presenting our proposal before the end of the summer, and that we will be relying in a very real and sincere way on many of the proposals you have made.
Several of you, including Mr Ludvigsson, Mrs Ford, Mr Cancian and Mrs Băsescu, just now, called for the tests to be - I shall repeat what I heard - rigorous, credible and transparent. Once again, in the overall context of this financial and economic governance that we are in the process of establishing together, the 2011 tests will be more rigorous, credible and transparent than the previous round, and we are going to build on the lessons and the review of this 2011 round in order to ensure that, as you have requested, the subsequent stages in the banking sector stress tests are even more effective, rigorous, credible and transparent.
President
Thank you very much, Mr Barnier. Our discussions have gone on a little too long. It is very much to your credit that you have responded to each speaker. However, perhaps in future, for educational reasons, we should agree that the final statement by the Commissioner will only respond to those speakers still actually in the Chamber. This would save us a little time. The last debate has actually taken us right to the limit of the time we have available to us.
The debate is closed.
Written statements (Rule 149)
Zigmantas Balčytis
in writing. - (LT) As we can see today, the stress test of banks operating in European Union Member States carried out last year failed to reveal the true situation in this sector. The Irish example has shown that this check was fundamentally unreliable. This year a slightly improved test was also carried out, and we are all awaiting its results. I feel that in order to restore EU citizens' faith in the banking and financial system in general and to ensure the credibility of the whole European financial institutional framework, the newly created European Banking Authority must be given much greater powers and a more important role. I believe that tests should be carried out systematically and cover as broad a range of risk elements as possible - these vary across the Member States. The European Banking Authority should also lay down clear procedures and have the opportunity to submit decisions that are obligatory for banks if the checks carried out reveal banks' financial instability or unreliability.
Csanád Szegedi
It is interesting that after the failure of the stress test the press was flooded by false success reports even last year - obviously this was also due to the machinations of the European Commission. And now not just us, but everybody from the liberals to the PPE demand an explanation for the failure. They, however, are seeking a solution in false answers, for example in the form of additional governmental capital injections pumped into banks or in further Brussels centralisation. But the actual reason for the failure is precisely that the Brussels bureaucracy is simply not able to assist us efficiently in most of fields of our lives. So after the fiasco they should not want to withdraw further licences from Member States and waste billions of euros on establishing further mammoth authorities; instead, they should admit that Europe cannot exist as the United States of Europe, and the more power is given to Brussels, the more efficiency will decrease.
