Banks ‘may need to fail EU stress test’

SOME banks need to fail a sector-wide review of their financial health in order to make the exercise credible, the head of the eurozone’s new banking supervisor has said.

As part of a broad push for closer integration of Europe’s banks to avert future crises, the Single Supervisory Mechanism (SSM) will monitor the bloc’s largest lenders from November under the auspices of the European Central Bank.

Before then, the SSM is running the rule over the quality of the assets on the balance sheets of the bloc’s 128 biggest banks.

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That will run in parallel with broader stress tests of the whole banking sector under the control of Europe’s regulator, the European Banking Authority (EBA).

ECB President Mario Draghi said last year there needed to be bank failures to make the battery of tests credible, comments SSM head Daniele Nouy underlined in an interview yesterday.

“It seems precisely what markets expect from such an exercise; so, yes, probably that’s the case,” she told the FT.

“I do not have any idea of how many banks have to fail.

“What I know is that we want to have the highest level of quality.”