Lautenschlaeger: ECB will not let banks failing tests off the hook

FRANKFURT Fri Feb 28, 2014 5:16am EST

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FRANKFURT Feb 28 (Reuters) - The new euro zone bank watchdog will let banks fail if they do not pass the ongoing balance sheet review, the vice chair of the Single Supervisory Mechanism said on Friday.

Sabine Lautenschlaeger, who is also a member of the European Central Bank Executive Board, said in the worst case scenario, national governments had to provide sufficient backstops to catch a failing bank.

"We will let banks fail, if they don't pass the assessment," Lautenschlaeger said in a panel discussion at a Bundesbank conference, adding that the ECB would conduct the tests in a tough manner.

From November, the ECB will supervise directly around 130 of the bloc's top lenders as part the European banking union that aims to create a more level playing to make banks more resilient for future crisis.

Before it does so, it is putting the euro zone's top lenders through an unprecedented review of their loan books and a stress test to see how they hold up under certain shock scenarios. Results are expected for October.

"We will draw conclusions for banks that do not meet the capital ratios from the comprehensive assessment. I think that this year will be decisive. We have the chance to clean this up, and we will use this chance," Lautenschlaeger said. (Reporting by Eva Taylor and Sakari Suoninen)

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