HIGHLIGHTS-Praet says ECB's AQR of banks to fill information gaps
LONDON, Sept 17
LONDON, Sept 17 (Reuters) - Below are the comments by central bank policymakers and regulation experts made at a conference hosted by the London School of Economics. This item will be updated throughout the day.
Peter Praet, European Central Bank Executive Board member
ASSET QUALITY REVIEW
"We will provide what are the basic parameters of the exercise so that the banks can prepare for that... The exercise will take some time. We have to do data validation. What the sector really needs is to have some information on the ingredients of this exercise."
"The asset quality review followed by the stress test, we will communicate by mid-October AQR the broad lines of the exercise and the governance of the exercise. That is key to providing information, the response to the problem of asymmetry of information."
Europe's capital market is heavily dependent on banks which is a "bit of a problem" as it generates large amounts of private, opaque information.
"Because we deal with opaque information, when there is a shock in the system it creates a big effects. The asset quality review is aimed to reduce a little this gap of information that paralyses the market."
"When you look at the price to book value on the Continent you find 0.5 or 0.6 on average. If you look at the U.S. it's one or one plus."
"There are a number of reasons. One is that there is money to be invested in banks and nobody knows exactly what the situation is because of opaque information."
"We are ready to provide liquidity to banks as we have done before in difficult environments
Two key shifts were underway as risks move from mainstream banking to shadow banking, and from mainstream banking to end users of financial products like pensions.
Regulators were now trying to "disconnect" mainstream banking from shadow banking, some of which was incorporated inside banks such as money market funds.
"It's very difficult to know how that is going to work. It's difficult to see how the transition is going to happen. How do we manage the transition, that is the key problem today."