Ireland’s IMF/EU Bailout. The Financial Crisis Has Not Gone Away

Interest-Rates / Credit Crisis 2011 Jan 19, 2011 - 01:00 PM

By: Christopher_Quigley

(Reuters: 18th. January 2011) -: “EU finance ministers agreed on Tuesday they wanted tougher stress tests for the region's banks to restore confidence in the bloc's financial system, but remained locked in dispute over how strict they should be.

"We discussed bank stress tests ... and we are really agreed that the new stress tests should include more banks," said German Finance Minister Wolfgang Schaeuble.

"This is the clear position of the German government but also most of the others, and we should try to avoid that which happened last year," he added, commenting on July tests, branded irrelevant after they gave Irish banks a clean bill of health.

Michel Barnier, the European Commission official attempting to broker a deal with the EU's 27 countries on how the checks would work, highlighted continued disagreement on how this should be done. "We need to have more time to work on this," he said.

"We do need a few days on the issue of liquidity to see whether or not to go further on the question of sovereign risk," he added, flagging the most contentious point in the debate -- whether or not the taboo subject of a default on debt in Greece, for example, should be one of the test scenarios for banks.

Ministers also failed to reach a final decision on whether banks should be tested for a liquidity crunch to predict whether they could tough out borrowing difficulties should markets freeze.

A diplomat from Hungary, which currently holds the EU presidency, said ministers were near agreement on testing liquidity, even though no formal decision had been made.

The European Central Bank, which has spent billions supporting credit markets, and the European Commission want this check. But some countries fear it would present too bleak a future for banks and trigger calls for big capital injections.

LIQUIDITY CHECKS

There was uncertainty as to whether the liquidity checks would be published as investors want. The European Banking Authority, which will coordinate the new checks, said last week they would not.

"I am for liquidity being tested, but whether we should publish this must still be discussed," said Schaeuble.

"The question of what details we should publish is another question, and you have to keep in mind what kind of consequences this can have on the behavior of investors."

Late on Monday, the EU's economy chief Olli Rehn had promised the test results would be delivered by June.

"The results will come this summer," said the Hungarian diplomat on a timetable which could disappoint some investors who have been hoping for results as soon as next month to reduce uncertainty over the euro zone’s banking system.â€